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

https://www.thebignewsletter.com/p/its-the-land-stupid-how-the-homebuilder

by nth_degree • 2 years ago

140 218 2 years ago

mikece• 2 years ago

Cornering the market, or a sufficiently large portion of it, doesn't necessarily drive prices higher. Demand plus cheap credit (and Wall Street shenanigans) are at least as much to blame.

JumpCrisscross3• 2 years ago

Demand plus cheap credit (and Wall Street shenanigans)

This is unfalsifiable voodoo. It can be used to describe practically any economic phenomenon.

the_gastropod• 2 years ago

Interest rates tripled in the past few years, and home prices continued their upward march throughout most of the U.S. Do you mean something else by "cheap credit"?

sroussey6• 2 years ago

Tripled from a hundred year low. Kinda normal to mildly low still.

Prices are up since people did 30yr mortgages at obscenely low rates, and don’t sell/move in order to keep them. That group will eventually rotate out. Ironically, somewhat lower rates will cause a housing price decline.

sirspacey• 2 years ago

Unless you are willing to hold the asset at 40% occupancy without changing prices because preserving the on paper value is more important than profiting from rent.

Then you get New York City.

dan-robertson• 2 years ago

This is maybe a stupid question, but if credit is cheap, shouldn’t it be easier to finance a housebuilding operation? In the very low interest rates from say 2008-2020, I think we saw less housebuilding in the United States than before.

JumpCrisscross3• 2 years ago

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

kaibee8• 2 years ago

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...

smallmancontrov• 2 years ago

The mistake made by Georgism is to assume that rent extraction is a bug. It's not. The economy is literally owned by rich people -- that's what capitalism is -- so rich peoples' opinion is the one that counts, and rich people want to get paid for being rich. Rent extraction is a feature not a bug. Georgism will never see political success due to this misunderstanding of political economy.

xnx5• 2 years ago

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.

netbioserror• 2 years ago

Land and homes also make for excellent inflation hedges; thus, property owners become advocates for money printing and suppressed interest rates.

lapcat5• 2 years ago

No shortage of land in the US, but everyone wants to live in the same few places

It's not enough to have land, though. The land needs access to water and electricity, not to mention roads, or it's a nonstarter, especially if you want to build a bunch of homes on the land. And the new homeowners will need access to food and supplies, i.e., stores. You need an entire community.

kaibee8• 2 years ago

The neat thing about capitalism is that stores will be built to serve the community if there's a market for it. We don't need to centrally plan the whole community up front. We do need zoning laws that ALLOW those stores to be built though.

xnx5• 2 years ago

Very true. There are many areas in the US (Detroit for example) that have lost population over the past 50 years that wouldn't have to start from scratch with new development.

ghaff3• 2 years ago

That's a bit of a strawman though. There are plenty of cities and towns that have infrastructure and have stores at some level that have much lower costs. (They may or may not have good local jobs.) It's not a choice between NYC/SF/etc. and the wilds of Wyoming.

toomuchtodo4• 2 years ago

The fix is to enshrine remote work for jobs that can be remote (labor regulation and whatnot), enabling labor mobility to where housing is affordable, but the ideological challenges prevent that. So, instead, we gnash teeth and say there is no solution while we slowly build more housing stock and hope that'll catch us up eventually. It will, eventually, as immigration slows, and the death rate exceeds the birth rate and household formation (see: Japan), but that will take time.

To destroy housing values to increased affordability, you must destroy locality as a value factor.

Aurornis3• 2 years ago

The fix is to enshrine remote work for jobs that can be remote (labor regulation and whatnot), enabling labor mobility to where housing is affordable,

Not really a fix. When people's location becomes free from their jobs, they don't move to remote locations where land is cheap. They move to cities they want to live in, or cities where they have friends and family.

The subset of people who prefer to move to the middle of nowhere and prioritize the cheapest housing above all else is very small (and probably overrepresented online)

ssimpson• 2 years ago

In the US, per state employment regulations can hamper this as well.

onemoresoop• 2 years ago

Why does everyone want to live in the same few places? Because all ways to make money and a living are there! Give people the option to work remotely and they can live wherever they want, and that is not in crowded expensive cities most of the time.

mulmen3• 2 years ago

There’s a lot more to life than a job. Most jobs can’t be done remotely. How do you convince a barista to move to New Billings? Is there anything to do there after work?

bratwurst3000• 2 years ago

i work remote and i live in an expensive city. why? because I was raised here and have many friends and there is much cultural events going on. work aint everything

Aurornis3• 2 years ago

Give people the option to work remotely and they can live wherever they want, and that is not in crowded expensive cities most of the time.

COVID dramatically increased the opportunities for remote work. Yet housing prices in major cities went up, not down.

Anecdotally, my friends who moved during COVID remote work all moved to cities they wanted to live in. I knew more people leaving mid-sized towns to move to Seattle, NYC, and the Bay Area than the opposite.

stouset• 2 years ago

We have made an enormous shift in that direction post-COVID and it turns out that: [drumroll] people still largely prefer to live in cities when financially viable. The price tag of cities is itself evidence of this. San Francisco isn’t expensive in a vacuum. If there wasn’t demand for housing at these prices, they would fall. And yet people continue to willingly pay an enormous premium for the privilege of living here.

I can walk across the street to get my groceries. I have at least fifty restaurants within walking distance. My doctor is four blocks away and a large hospital is six. I have access to a large park three blocks away.

There is a streetcar that goes straight downtown one block away and three buses that go throughout the city are right at the end of my block. I can bike to virtually anywhere I want to go if walking is too far or transit is annoying.

And all of this keeps us healthy. It’s no secret that obesity is approaching near universality in areas of the country where driving is the only option to reach basic amenities. It also correlates with reduced energy use and therefore to reduced greenhouse gas emissions.

Making cities cheaper goes a lot further than trying to make cheap but fundamentally broken suburbs and exurbs less hostile. And part of that is precisely what this article highlights: the rentier class siphoning away the profits of workers while providing little to no value themselves. And I say this as a homeowner (and therefore landowner) myself.

TulliusCicero4• 2 years ago

That's part of it, yes. But some areas can be more desirable for other reasons, too.

It'd be better overall for society if we just got rid of exclusionary zoning and made it easier for people to live where they wanna live.

linguae• 2 years ago

Even with remote work, it may still be beneficial to live in or near a large metro area. From an American point of view, large metro areas generally offer many amenities such as a variety of cultural events (concerts, exhibits, festivals), a variety of shops and restaurants, international airports, a populace that is diverse and is more accepting of people from diverse backgrounds, expanded opportunities for education, and much more. Even if one chooses not to live in the Bay Area or New York City due to housing costs, there are still other desirable metro areas in the United States that offer these amenities and have lower (though definitely not low) housing costs. To add, if one could afford the housing costs of the Bay Area and New York City, there are many reasons to live in those places.

VancouverMan• 2 years ago

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 residential construction taking place in total.

doubled112• 2 years ago

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...

ekez• 2 years ago

If "we" all got together and reduced permitting costs, "our" homes would be much more valuable because a developer can build a highrise where the house is.

dnissley3• 2 years ago

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).

aorloff3• 2 years ago

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

TulliusCicero4• 2 years ago

Translation: keep out them poors.

Zoning that mandates low densities is used to economically segregate areas. They're invisibly gated communities enforced by the government. "Can't live here unless you can afford to buy/rent this much land."

One of the things I noticed while living in Munich was that the differences in apparent neighborhood prosperity in different parts of the city were vastly less extreme than in major US cities. Almost every neighborhood looked kind of vaguely middling, it was rare for a place to look obviously well-to-do or obviously run down.

And it makes that it's harder to get extreme differences there if at least medium density dwellings are allowed just about everywhere. Working class people may not be able to afford a whole house, but they may be able to afford an apartment in a given neighborhood.

hackermatic2• 2 years ago

I think people in the US overestimate how much upzoning "has to" affect most neighborhoods, especially infill development or removing default single-family home zoning. I used to live in Minneapolis, which has lots of century-old duplexes and fourplexes mixed in with single-family homes on similar lot sizes. Traffic, activity/noise, appearance, and overall "niceness" were almost the same as on single-family-only blocks -- but the bump in density supported lots of corner stores and restaurants in walking distance that made people want to live there or visit the neighborhood for the day.

Part of the apprehension might be caused by the difficulty of rezoning itself. The only people with the determination and money to get a zoning variance are big developers who need a big building to make it worthwhile. That's how you get 50- or 100-unit apartments going up in single-family neighborhoods, and a "missing middle" of density and affordability.

1986• 2 years ago

Did you know that a third of the US population lives in a rental property?

xnx5• 2 years ago

I didn't. Unfortunately, renters vote at a lower rate and don't vote with the same focus as property owners.

nomel2• 2 years ago

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.

whartung• 2 years ago

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.

nineplay9• 2 years ago

Property values are a small-to-none factor.

I don't want more noise.

I don't want more traffic.

I don't want more students at my kid's schools, which are already at a 35/1 kid to teacher ratio.

That's it for me. I think that's it for a lot of people, whether they live in cities or suburbs or far out in the country. Very few people want more crowding. The people who like living in dense cities already live there.

Blaming greed and property values is just a distraction.

chgs4• 2 years ago

Presumably double the density you also double the size of the school and double the teachers.

If you don’t, the problem isn’t the density.

nemo44x5• 2 years ago

I could never understand why some people don't understand that people buy into a community because they like the community in the state when they bought into it. And that making large changes to the community would alter the community and what people liked about it will be diminished. Not to mention the practical aspects like utilities, road capacity, schools, etc. as you've pointed out.

For some reason, some people outside a community believe they should have a voice on what the actual community wants. As if a community should be expected to want to ruin what makes their space attractive so interlopers can infest it?

Some development where it makes sense - sure. But no, we aren't converting our homes and properties into multi-family dwellings.

m_fayer• 2 years ago

Asking people to sacrifice for the greater good requires that they trust their leaders and systems to do everything possible to maximize the benefits and ameliorate the harms. Absent that, it’s every man for themselves.

mint25• 2 years ago

None of those are required in cities, and actually suburbs are the main cause of traffic jams.

The main noise in most places is traffic, and traffic is usually caused caused by sprawl, low density and car oriented building.

What you’re objecting to is fixed by more density

durumu• 2 years ago

The people who like living in dense cities already live there.

One would then think that dense cities would build more housing, but that doesn’t seem to happen. NYC, SF, and Boston are the densest cities in the country and build barely any housing compared to areas like Houston and Austin.

I also just think it isn’t true that everyone who wants to live in a dense city does. My experience is that a lot of people would absolutely love to live in NYC but can’t afford it, and I think this is primarily because there is not enough housing.

Red_Leaves_Flyy2• 2 years ago

Traffic?

Build rail and deploy bussing like you fucking want it. Make it so good Japanese and European civil engineers ask you for help.

Noise?

That’s an engineering problem.

Teacher ratios?

Your property taxes too low for the services your community needs. Notice how I said need - it’s necessary. 20-1 is high, 30+ plus and your local governance is criminally incompetent.

You’re distracted by change and upset that you need to adapt to a world that’s moved past you. Tale older than the dirt we walk on.

smcin• 2 years ago

This on the same day that the SF Bay Area pulled its $20 billion housing bond from the November ballot [0], after objectors claimed the published costings were inaccurate. (SJMercuryNews: "The total cost, including principal and interest on the bond, is estimated at $48.3 billion and would take more than 50 years to pay off.")

Another relevant project is the Solano County ("California Forever") proposal [1], which is being dropped from the 2024 ballot but is still active (presumably for March 2026 ballot, when there will be gubernatorial primary and high turnout).

Also, after 2024 CA Proposition 5 ("Lower Supermajority from 66.67% to 55% for local bond measures to fund housing projects and public infrastructure")[2] has been voted on. (It's also being challenged by the Howard Jarvis Taxpayers Association.)

We will be able to compare timelines/costs/delays between the two development proposals and get answers on whether costs/delays in CA homebuilding are primarily due to the homebuilder, the city/county, CA state, the development process in general, or nearby residents' objections. The Solano County proposal is more greenfield and seems to have more supporters and fewer existing homeowners to object, so this outcome should be interesting and informative. (Of course, it's a distinct possibility that both proposals get killed politically, which would also give us the answer that it's not really about costs or timelines, and that a vocal minority of existing homeowners/landowners can game the process to pretty much kill any proposal, regardless how antisocial that might be.)

[0] https://www.mercurynews.com/2024/08/13/20b-bay-area-housing-...

[1]: KQED Forum "What’s Next for California Forever’s Proposal to Build a New City in Solano County" https://www.kqed.org/forum/2010101906729/whats-next-for-cali...

[2]: Ballotpedia: CA Prop 5 https://ballotpedia.org/California_Proposition_5,_Lower_Supe...

davidw• 2 years ago

It's satisfying to blame a big bad "them" for this, but the problem is "us"

Yep. People want a bogeyman so bad, but time after time, I show up to hearings, read about efforts to build housing and the problem is local NIMBYism: https://bendyimby.com/2024/04/16/the-hearing-and-the-housing...

My own take on the 'bogeyman' theories: https://bendyimby.com/2023/01/11/the-bogeyman/

jauntywundrkind• 2 years ago

One thing DC had some well half a century ago was housing coops.

Take a bunch of folks across a block of area & convince them to band together & build big. Create a housing coop that collectively owns the building, is the people who will live there.

Right now every property owner is sort of in it for themselves. Figuring out ways to enable development while retaining ownership, without forcing owners to sell of their stake, while enfranchising future owners, worked really well. But it feels like we aren't trying to replicate this clear success.

Opportunity comes at scale Figuring out how to make that scaling possibly accessible by residents (versus someone else getting to capture the value of redevelopment) requires some legal can do willingness we haven't been seeing.

xnx5• 2 years ago

Interesting. I'm reading about co-ops, and I don't see much functional difference from condo associations.

dachworker• 2 years ago

So basically, if you're an individual, or a contractor who reinvests their earnings into the housing market, you face two challenges: getting competitive financing, and finding a plot of land to build on.

Question: is finance screwing up capitalism? Real estate is supposed to be one of the most competitive and dynamic markets. If you can turn even this very simple and basic market into a quasi-monopoly, then there is something fundamentally wrong with the whole economy. And it seems all fingers point to Wall Street.

lotsofpulp4• 2 years ago

Real estate is not competitive nor dynamic because of the disproportionately low property (specifically land value) tax that property owners pay relative to the utility they get from society (police/military and courts to protect their land as well as myriad other policies that ensure a stable society).

Simply hoarding land should not be profitable, and yet it is one of the most profitable businesses because of subsidies (too low property taxes, 1031 exchange, various “farming” and other exemptions).

kjkjadksj12• 2 years ago

You don’t have to be the sole investor. Say you can afford to invest $10k. You could try and find a 2k plot to put a 8k garden shed on. Or you can put that 10k in a REIT and get a gain.

23B1• 2 years ago

Absent from this article:

- Financing requirements & anticompetitive lending practices

- Municipal/state building codes and the regulatory capture thereof

- NIMBYism and activist urban planners

- The tyranny of the commute

crooked-v• 2 years ago

Overconsolidating is bad, but the article's chain of logic falls apart for me because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes, while ignoring that local permitting and approval process have gotten ever more pricey and complicated over even just the past two decades.

For the extreme example, take a look at San Francisco, which has approved a grand total of 16 housing units so far this year (https://www.newsweek.com/san-francisco-only-agreed-build-16-...). Only a tiny margin of ultra-high-price housing can even be sustainable, let alone profitable, in that environment.

kaibee8• 2 years ago

because it doesn't actually make any connection to indicate that these companies wouldn't make even more money by building more homes,

I think it comes down to risk, effort, and available labor/resources. If it costs them nothing to hold the land and build only when they're very sure that the building will be profitable, then that's what they'll do. But once they have the whole construction side working on projects... if there's capital left over... why not buy up more land in the mean time? It makes it harder for your competition to build while you work through your backlog and it costs you basically nothing.

nnf• 2 years ago

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't interested in.

Most of them sold. One of the larger lots was around $350k and is still for sale, now for almost $2 million.

I don't think developers should be forced to sell land just because I want to buy it, but the taxes they pay on their empty lots is extremely low. I checked on a couple of the ~$750k lots, and the taxes were something like $115 per year. At that rate, it costs the developer/speculator basically nothing to hold onto it while prices rise.

If lots like this were taxed at, say, 20x the current rate for lots that are near areas that are being built up and are ready to be bought, then there would be a stronger incentive for the owners to sell to people who are ready to build and start paying property taxes. It seems like such an increase would benefit everyone except the speculators.

lotsofpulp4• 2 years ago

It seems like such an increase would benefit everyone except the speculators.

Correct, a simple power law tax formula on unimproved/vacant land that forever increases the cost to hold onto land near and in the middle of population centers would do wonders.

kaibee8• 2 years ago

Really we just need a Land Value Tax.

https://www.investopedia.com/terms/l/land-value-tax.asp

theoreticalmal2• 2 years ago

This seems a lot like a tax on unrealized gains. You’re taxing something that might have value in the future, rather than it’s actual value now.

lotsofpulp4• 2 years ago

Yes, it’s called property tax, calculated by multiplying a property tax rate times assessed value of the property. Does anywhere not already have that?

Spartan-S63• 2 years ago

That's the idea, though. If you're sitting on an undeveloped or underdeveloped parcel of land, you should bear the cost of the value of the land. If it's in a rural area, you can probably weather the tax burden because it's worth a lot less than a surface parking lot in an urban area.

The idea behind such taxation is to destroy the deadweight losses created by land speculators. You either buy the land, develop it, and bear the weight of the tax on the fair assessment of the land's value, or you don't buy the land at all.

Property tax is predicated on the value of the structure now. Land-value taxes are predicated on the value of the land, developed or not. That will fluctuate based on the desirability of the surrounding area.

The irony is that property taxes are predicated on the value of the structure, but the practicalities of market forces are that the land is what's actually valuable. So rather than keep playing this mis-labeled game, we should embrace land-value taxes and have municipalities asses taxes without regard to the structure, just the potential economic value of the land.

TulliusCicero4• 2 years ago

And that's a good thing, because unlike other valuables, you can't just create or mine more land. Land is inherently valuable based on its location, you can't just get more of it somewhere and import it in.

There needs to be pressure to actually make productive use of land so that people don't just uselessly sit on it.

sroussey6• 2 years ago

Seems like the developer wasn’t the problem.

chgs4• 2 years ago

Yes the inability for society to tax the land is the problem

adverbly• 2 years ago

Your thinking is exactly correct.

Economists have been saying this for over a century.

Look up land value taxes. They are what we need right now.

tigen• 2 years ago

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.

mulmen3• 2 years ago

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

biomcgary• 2 years ago

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.

refurb• 2 years ago

Shocking! A core precept of an entire article is wrong.

simoncion• 2 years ago

> In 2023, when it built roughly half as many...
It did not build half as many homes, it was 82917 homes in 2023 vs. 51172 in 2005.

Unless my math is wrong: (82917-51172)/82917 ~= 0.38

~40% is roughly half.

tamimio• 2 years ago

Fun fact: About 89% of Canada's land area (8,886,356 km² or 3,431,041 sq mi) is Crown land: 41% is federal Crown land and 48% is provincial Crown land. The remaining 11% is privately owned. For example, 92% of Quebec, 87% of Ontario, 95% of Newfoundland and Labrador, and 94% of the land in British Columbia are Crown land. So when you “buy” land, you actually become a tenant to the Crown. If you don’t pay the property taxes, “your” property can be registered for sale. The laws around properties in Canada are extremely complicated and stupid. A friend of mine, after building their house and wanting to connect the sewer to the municipal one, was required to pay more than $50k! After 2 years, they ended up having a septic tank instead.

Unfortunately, there’s no hope to fix the housing issue in a democratic way because the majority of the voters are landlords. The only possible solution is like Japan (where houses are depreciated assets) by having centralized control over housing, zoning, permits, and everything to maintain a flat price. Other than that, the future is grim for young people or anyone who doesn’t already own a house. I remember a year ago I saw a mortgage here in Canada of 70 years, so if you bought a house at 30, you will become a Crown tenant by 100!

(1) https://en.m.wikipedia.org/wiki/Crown_land

b112• 2 years ago

Wildly inaccurate. No one owns crown land, if you buy land, that's "privately owned" If you don't pay property tax, eg you are in arrears, your land is seized and sold to pay your debt. Again, that has nothing to do with crown land.

aorloff3• 2 years ago

If you don't pay property taxes for long enough (usually 5 years) in the US, typically your property will be auctioned off at a county tax sale (assuming your lender hasn't paid the taxes and foreclosed first).

delichon2• 2 years ago

  Nearly 40% of the United States is public land, supported by taxpayers and managed by federal, state, or local governments. -- https://headwaterseconomics.org/public-lands/protected-lands/public-land-ownership-in-the-us/

Allocating a few more percentage points of that for housing could have a large effect on prices.

warkdarrior• 2 years ago

Yes, and nobody wants to live there.

delichon2• 2 years ago

Look at a digital U.S. map with a private / public land overlay and zoom in on the satellite images. It quickly becomes clear that people will live wherever they are allowed to. Sometimes the population stays low and sometimes bare desert turns into the Las Vegas metropolitan area.

theoreticalmal2• 2 years ago

Probably any land the federal government would be okay selling to developers is also land that no developers would have the capital or physical ability to improve to the point of being valuable. Most of Nevada is federal land. Almost no one wants to live on it.

sroussey6• 2 years ago

The major of Los Vegas says otherwise.

https://www.reviewjournal.com/opinion/commentary-government-...

kjkjadksj12• 2 years ago

The federal land is not necessarily where the jobs are. Its stuff like remote gun ranges or national parks. Unless you are considering VA hospital and federal cemetery land.

treis• 2 years ago

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 suspect most of the other big guys would say something similar. These aren’t builders, they are financiers that borrow cheaper than real developers and use that cheap credit to speculate in land, hiring contractors to do the work. They are, in other words, middlemen.

This is pretty far out there. They are the general contractor and have substantial value add to the project.

Most of the rest of the article is misunderstandings like that.

schlauerfox• 2 years ago

Don't forget the Lennar tax they impose permanently on the land deed (runs with the land) they sell you you pay each transfer. https://labusinessjournal.com/news/lennar-forces-donation-on...

burnte• 2 years ago

Never heard of this, and I'm glad I know now. I'm putting this right under HOAs as things to avoid at all costs.

vundercind2• 2 years ago

The structure of neighborhoods I’ve seen pop up in the last couple decades (maybe also earlier, I dunno) is that of a neighborhood developer who farms out the work of building the houses to (usually) a few select other firms, which do the actual GC work and sell the houses, having bought the lots they’re building on from the owner of the neighborhood. The neighborhood developer is mostly in land speculation, they don’t GC the building of houses. IDK if such outfits bill themselves as “home builders” in some contexts, but it wouldn’t surprise me.

allturtles• 2 years ago

If you're talking about developing an entirely new neighborhood, that involves a lot of work beyond just buying the land, carving it up into lots with a pencil and then selling them for a profit. They have to survey and plan and layout the neighborhood, including the lots, roads, drainage systems and any common areas. Then they have to get all the necessary approvals from the local government, which typically includes drainage studies, traffic studies, school impact studies, architectural reviews, discussions with residents who live on adjacent properties, etc. This often involves multiple rounds that requires revisiting the original design. Then they have to actually get all the infrastructure built out to the point where homes can actually be built on the lots (roads, sewers, drainage ponds, sidewalks, land grading, etc.).

mikem170• 2 years ago

And they build them for maximum profit, with nothing besides cookie cutter houses, each with a new tree out front, and nothing else unless you get in the car to drive to the nearest gas station or plaza with a chain restaurant or big box store.

BenFranklin1002• 2 years ago

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.

Aurornis3• 2 years ago

I don't find this article very compelling. The core argument comes from a single 2018 paper from a single author who used IV regressions to claim that increased consolidation of homebuilders is consistent with a reduced amount of new construction.

The argument in this article is that small homebuilders got caught in the credit crunch and had to flip their lots to the mega builders, who maintained access to capital and credit that the small players didn't have. So now the big players are hoarding land and not building on it to control the market.

I can believe that a credit crunch has cooled the construction market. Nothing about that would be surprising. I have a harder time believing that the major home builders have bought up so much land that nobody else can build anything, leaving them to control the market price of houses by artificially limiting supply.

Anecdotally, the most expensive housing markets are in cities where most of the buildable land has already been used by something. This is where these supposed land-hoarding mega builders would have the least influence. In my experience there are a lot of affordable houses being built in smaller cities and in the outskirts of major cities, but the demand just isn't there. More people want to live in dense and desirable locations and they're willing to pay a premium for it.

lapcat5• 2 years ago

One of the worst aspect of these big home builders is that they impose homeowners associations on all of their new homes. It's difficult to find new homes free of HOAs.

pdonis• 2 years ago

I think this is at least partly driven by the locality (city or county) wanting more property taxes from the new homes. In a city near me, there have been five new subdivisions approved in the past few years, all of which have not only HOAs but CDDs, which are basically extra property taxes (ostensibly to fund the building of more amenities in these communities like pools and community centers) that get split between the developer and the city/county until the community is fully built out, and then the city continues to collect them for an additional period that, I believe, is something like 30 years. The city/county required the HOA/CDD setup as a condition for the subdivisions to be developed.

gist• 2 years ago

Can't afford 'high' prices? Work harder spend less time on play or leisure pursuits. Realize maybe you should have studied harder in high school or picked a career based on earnings rather than 'what you enjoyed'. While this doesn't cover all situations for sure it does cover many 'whiners' who wish things were just easier for them 'because they should be and that's why'.

Not everyone can 'win' and the people who try harder often win more. And of course don't forget 'luck'. It plays a large part as well.

And guess what? Many of those people who win actually worked harder and weren't born or inherited and are from disadvantaged groups. Nobody wants to think that. Everyone thinks the other person has an edge 'and if I just had that edge things would be fine for me'.

(My father came to this country with nothing. My mother grew up and her father died back when there was no social safety net. All the children went to work. And yes because of that and in addition to my personal hard work and attention to school things are better for me for sure.)

We have a DR Horton home. It's really nice and well built. They deserve to make money.

xt00• 2 years ago

If the companies that are holding land are able to maintain steady profits with minimal competition, then the logical approach is to say we should incentivize them to build on the land, make improvements etc now to ideally decrease the value of the existing land to make it more affordable to people. So could you essentially say "if you own more than 20 properties that are not owner occupied, you have to pay a tax.. but if you sell the house, you get some large chunk of the tax money back".. something that should encourage the big builders to build something and to sell it -- not to build and potentially rent it out -- which is in many cases the most expensive type of house to rent.

JackYoustra• 2 years ago

Changing financing doesn't actually change underlying affordability. If your distinction is "rent vs own" and you ban doing it primarily you're either going to have pretty miserable housing outcomes or essentially shadow mortgages.

As well as push things to subletting or force people to stay in one place for most of their life.

iambateman• 2 years ago

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. But only so much of that exists.

At least one major reason is that neighborhoods actively fight the installation of semi-dense housing because it would “ruin the character of the neighborhood.” This gets encoded in zoning.

The people who have most power over local zoning regulations are neighborhood boards, not home builders.

vundercind2• 2 years ago

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%)

BenFranklin1002• 2 years ago

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.

kjkjadksj12• 2 years ago

Right after the war my grandfather and his brothers built probably 8 homes as a little business before finding other work. They did it all themselves. The plans, the building, wiring, plumbing, everything.

Part of the issue is that the big guys have pushed out players like this. But another part of the issue is the onerous code process in place today. Could you even get a few guys together to build a home without having a certified electrician or engineer? And even if you could, does the present generation of able bodied workers even have the knowhow as my grandparents generation? The guy would spend all the time I waste on TV or the internet working out projects and plans until the day he passed practically. Seems present generations are a bit distracted by the digital world to pick up so many useful analog skills.

jmyeet• 2 years ago

So you see a problem like this and your reaction generally falls into one of three buckets:

1. There is no problem. This is working as intended. Everything is fine;

2. There are a few bad apples on an otherwise good and functioning system; or

3. The entire system is fundamentally broken.

To blame the "homebuilder cartel" sounds very much like (2) to me. My view is that the entire system is broken and it goes back to enclosures and private property borne from capitalism and liberalism, respectively.

Liberalism is the deification of individualism, implicitly rejecting any sort of collectivism. A key pillar is the idea of private property, that is the ability to acquire and maintain a state-backed exclusive use of land well beyond your personal needs.

Capitalism is really the evolution of feudalism and the origins were in England with the Enclosure Acts [1]. These transformed land use for grazing by all to people having exclusive use thereof. You might hear as a counterargument things like "the tragedy of the commons". Interestingly, this term originated in 1968, some 350+ years later.

I bring this up because when I see people hoarding land and people voting out of narrow short-term self-interest to restrict supply and reduce housing in order to increase housing costs, I don't necessarily see that as a failure of government or the fault of a few bad actors. I see it as inevitable given our economic system.

So much of history can be viewed as simply a land grab.

I don't expect our economic system to change anytime soon but the governmentr can do a lot to alleviate this. At a minimum:

1. Ban single-family house zoning in urban areas. Multi-family units should be legal anywhere within city limits;

2. Stop subsidizing suburban expansion to the degree we do by building roads to a ridiculous degree;

3. Build public transit infrastructure. For the successfully-propagandized Americans who will fight this because "it'll raise our taxes", people on trains will make it faster and more convenient for you to drive. Literally everyone benefits.

4. Punitive taxes on non-prrimary residences (ie investment properties, second/vacation homes); and

5. Get rid of tax breaks for home buying.

I have zero confidence any of this will happen.

[1] https://www.thecollector.com/what-were-the-enclosure-acts/

daft_pink• 2 years ago

I’m just not sure about this article. To me, it seems like these large homebuilders can only efficiently operate in tract housing so if you want to live in the middle of nowhere and have total uncertainty regarding the quality of the neighborhood that you live in and quality of the schools, etc because they just built it and pay through the nose for a brand new home, you can buy into tract housing, but I think many people want to live in established neighborhoods, where newly built homes are custom built and they mostly aren’t built by these new companies or they have to build large condos or apartments, because that’s the only way to efficiently add large numbers of units. High housing prices are the result of the fact that most people purchase used homes, because the risk of purchasing a used home in an established neighborhood is simply lower and there just aren’t that many used homes, because people want to live in established neighborhoods.

anon2912• 2 years ago

We need to make it so that most neighborhoods are developed by homebuyers rather than large conglomerates. My 1920s streetcar suburb was platted by the original farmer/owner and then sold off in lots. Today, this would be illegal / cost-prohibitive. It also leads to nicer / more varied neighborhoods where people actually own their land. Instead of yet another branded neighborhood where everything looks the same and the HOA board thinks too highly of themselves

tootie• 2 years ago

That's a pretty good formula for unsustainable sprawl.

anon2912• 2 years ago

Except.. that is not what happened when we actually did that. If anything, the neighborhoods are denser, and more walkable.

quantified2• 2 years ago

Having a stable, rather than growing, population would go along way to reducing the price of housing. Competition would be much reduced.

kjkjadksj12• 2 years ago

Population growth has slowed substantially in high demand cities. Honestly when looking at historical charts, prices were better when cities grew hand over fist. There was enough development to meet growth and also prevent much price growth beyond what wages could afford. Today there is little growth, and prices have surged as a result of that limited supply being bid up.

quantified2• 2 years ago

If we froze the population level and all the people try to move to the same place, it'll bid up the prices. But growing the total supply of humans only causes additional pressure.

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

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