When I built my old SFH land cost was 23%. It was a larger then average lot though, if I had gotten one of the more cookie cutter small lots it could have been less. Hard costs (labor and materials) was under 50% (can't remember exactly).
Sales cost (broker commission) and taxes were big. The town for instance charged $50,000 simply for the right to build a unit in the town. There there were all sorts of other town, county, and state taxes and fees. I get the impression this portion of the costs would be scalar, as in if I built a two unit property many of the fees would be twice as much.
Overall, it seemed like the town had calculated what the consumer surplus on new building would be and then charged fees that captured most of that surplus.
"But of course, remember this requires a rezoning, which means the developer probably has to spend several years fighting for permission to do the project."
How much does zoning, permitting, and other local compliance issues add to soft costs? These are examples of soft costs?
Yes compliance cost is part of soft cost. As to how much is regulatory, the simple answer is “some,” but the complex answer is “it depends on the project.” I can’t speak to the methodology, but this study from Washington found that regulation there added $72k per unit on average, but the variance was very high (ranging from a low of $4k to a high of $243k)!
Loved this thought exercise. I'm an affordable homeownership developer running our local Habitat for Humanity in Albany, NY -- I'd be curious to see how these numbers compare with what the Metro Denver Habitat is seeing in their developments. Totally with you on the deprofessionalization of small scale development, we have a measure locally to expand permitting for ADUs and it could help us add a lot of moderately-priced housing stock to our city.
That’s interesting, I didn’t think to try and find someone at Denver Habitat and ask their experience, but I should. If you know folks there I’d be happy to get an introduction!
Powerful insight in the abstract of the paper you link to that filtering benefits more people than adding a few units at the bottom of the income ladder. I will have to read the full study!
This is a great exercise, and it really grounds you to the reality of how hard it is to "just build more housing".
Now something that really interests me is the price of land, which seems very high indeed. Have you tried running the numbers on Lars Doucet's OpenAVMKit?
If you come and join us on the Discord, we can help you to find the data and use the software for land valuation.
Fun article, but you made an error in the first step. The calculation should be 30% of take home pay. 98k income will pay about 25k in taxes, leaving 73k on the table. 73k / 12 * 0.3 =1825 per month.
This is much closer to a 300k home than a 400k home
Intuitively I agree with you, but this does not appear to be how HUD calculates things. If you notice the link from Denver HUD they take 30% of gross.
I decided there was too much to fit it in this article, but I ended up having tons of questions about how we define “affordability” and why we define it that way… I hope to find time to explore that in more detail in a future essay.
When I built my old SFH land cost was 23%. It was a larger then average lot though, if I had gotten one of the more cookie cutter small lots it could have been less. Hard costs (labor and materials) was under 50% (can't remember exactly).
Sales cost (broker commission) and taxes were big. The town for instance charged $50,000 simply for the right to build a unit in the town. There there were all sorts of other town, county, and state taxes and fees. I get the impression this portion of the costs would be scalar, as in if I built a two unit property many of the fees would be twice as much.
Overall, it seemed like the town had calculated what the consumer surplus on new building would be and then charged fees that captured most of that surplus.
"But of course, remember this requires a rezoning, which means the developer probably has to spend several years fighting for permission to do the project."
How much does zoning, permitting, and other local compliance issues add to soft costs? These are examples of soft costs?
Yes compliance cost is part of soft cost. As to how much is regulatory, the simple answer is “some,” but the complex answer is “it depends on the project.” I can’t speak to the methodology, but this study from Washington found that regulation there added $72k per unit on average, but the variance was very high (ranging from a low of $4k to a high of $243k)!
https://housingstudies.biaw.com/reports/the-real-cost-of-zoning-the-invisible-tax
BTW, you wrote another outstanding article, even if you didn't need me to tell you that.
Thank you :)
Excellent.
Loved this thought exercise. I'm an affordable homeownership developer running our local Habitat for Humanity in Albany, NY -- I'd be curious to see how these numbers compare with what the Metro Denver Habitat is seeing in their developments. Totally with you on the deprofessionalization of small scale development, we have a measure locally to expand permitting for ADUs and it could help us add a lot of moderately-priced housing stock to our city.
That’s interesting, I didn’t think to try and find someone at Denver Habitat and ask their experience, but I should. If you know folks there I’d be happy to get an introduction!
Powerful insight in the abstract of the paper you link to that filtering benefits more people than adding a few units at the bottom of the income ladder. I will have to read the full study!
Wow!
This is a great exercise, and it really grounds you to the reality of how hard it is to "just build more housing".
Now something that really interests me is the price of land, which seems very high indeed. Have you tried running the numbers on Lars Doucet's OpenAVMKit?
If you come and join us on the Discord, we can help you to find the data and use the software for land valuation.
Fun article, but you made an error in the first step. The calculation should be 30% of take home pay. 98k income will pay about 25k in taxes, leaving 73k on the table. 73k / 12 * 0.3 =1825 per month.
This is much closer to a 300k home than a 400k home
Intuitively I agree with you, but this does not appear to be how HUD calculates things. If you notice the link from Denver HUD they take 30% of gross.
I decided there was too much to fit it in this article, but I ended up having tons of questions about how we define “affordability” and why we define it that way… I hope to find time to explore that in more detail in a future essay.
Thanks for the feedback!