Home Site Costs Soar
The price tag on much of Southern California’s most precious economic asset has escalated since July of 1986 by at least 20%, and, in prime areas, as much as 40%.
That valuable commodity is land and, as the bromide goes, “They’re not making any more of it.”
The escalation of prices for home construction lots immediately reflects on the price of a new home.
It will now cost about 20% more, jeopardizing the desires and affordability of would-be first-time home buyers, according to a newly released national study on land prices.
This major shift affects the long-standing ratio between the cost of site preparation for home construction and the eventual price of a new house. Generally, land costs have increased from about a quarter to a third of the total price of a new home in recent years.
Painfully, home ownership throughout the Southland in prime areas is already at a national high in both new and resale markets. In the latter category, existing homes here are priced at least $20,000 more, and as much as $50,000 more than the typical American home.
The upward spiral began in July of 1986, according to Paulette Bradshaw, vice president in the Orange offices of Dallas-based Lomas & Nettleton, the nation’s largest independent mortgage banking firm that made the study.
Very pointedly, her firm’s report cites an Orange County tract with a tentative single-family map “that was (priced) at $350,000 an acre last year and is now $500,000.” For a finished lot there, the builder’s cost will be $85,000 for a 5,000-square-foot lot.
In a planned-unit development on Orange County ocean-front property, the figure zooms to $1.5 million an acre.
She agrees that one-third of the total price of a typical Southland house represents the land cost.
She also points out that throughout the five-county Los Angeles area, builders “are chewing up 20,000 acres a year of residential land,” quadrupling the amount of land used up just five years ago.
In the realm of supply and demand, it’s a case of unprecedented demand and little supply, with major developments and planned communities entertaining waiting lists of land-seeking builders.
Bradshaw said it now requires at least three to 3 1/2 years to obtain necessary approvals to prepare raw ground for home sites, while the regulatory process for approval on large tracts may take six years or longer.
In charting current land prices, the study reports that a builder’s costs for an 8,000-square-foot site in the Inland Empire (San Bernardino and Riverside counties) runs from $23,000 in Banning to $50,000 in Chino.
That area and the high desert country probably represent whatever is left of any “bargain prices” because the land share price still equates to “a fairly reasonable 28% to 33%.”
In Ventura and northern Los Angeles counties, lot preparation for a 6,000-square-foot site will cost the builder from $29,000 in the Palmdale area to the low-$50,000 range in Valencia. The high costs pertain as well to apartment and condominium sites in the northern portion of the San Fernando and Simi valleys, costing the developer $40,000 to $50,000 per unit, Bradshaw said.
In Los Angeles and Orange counties, 35% to 40% of the new house price is for land, while in ocean-front and other very prime and desirable areas, up to half the cost of a million dollar house will be in the price of land.
Are such costs approaching the very drastic land costs of teeming Tokyo? In that land-starved city, 75% of the home cost is borne by the land, usually a tiny 2,000-square-foot plot. And, among the automobile-loving Japanese, a potential car buyer must prove that somewhere there is a space to park the car before the sale can be finalized.
Although lot prices hereabouts are not anywhere near that high percentage of house-to-land price ratio, she did describe the escalation of prices locally as accounting for the largest share of the house price almost anywhere in the United States.
Since Uncle Sam already owns one-third of all the nation’s land--principally in parks, forests, ocean front, mountains and deserts--the moral of all this for the land movers and shakers might be to buy more of the promised land--now.
