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View Diary: Dear New Orleans, Here is how to recover from destruction. Love, San Francsico (59 comments)

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  •  why do we get McMansions? (0+ / 0-)

    I think one of the reasons we get McMansions is that builders seem to maximize their profit on a spec house when they build a house that will sell four about four times whatever they paid for the land.

    With land costs rising, the size of the house they must build to maximize their profits rises.   Where land is expensive, you don't see modest new houses being built on largish lots.

    But if you can do things that bring down the price of land, the builder will be able to maximize his profit with a smaller house on the same property.

    So in many places, it may be that large-lot zoning is helping to drive the builder's profit structure and forcing him toward McMansions, even if there aren't all that many people who can afford to buy, furnish, clean, heat and cool a McMansion.  

    I've never been able to get a handle on why that 4:1 ratio seems to hold, but I've seen it quoted by a lot of people now.

    A recent Federal Reserve Board study showed that across 46 of our major metropolitan areas, for single family housing, land was, on average, about 50% of the total property value in 2004, up from 32% in 1984.  For New Orleans, the figure was 46.6%, up from 28.6% in 1984. (Table 6e, at http://www.federalreserve.gov/...

    For newly built houses, the ratio tends to be lower, and for older houses, the ratio tends to be lower, partly because the houses themselves are smaller and have depreciated and partly because older houses on average are closer to the center of things and therefore sit on more valuable sites.   They have city water and sewers, establish schools, transportation systems, shopping and other services, etc., already in place, not to mention many potential places of employment, and most people would prefer to live there if they can afford to, even though (or sometimes precisely because) they have less land to call their own.

    But if an owner is not going to penalized at all, or not going to be penalized much by a property tax that relates to building value, he is far more likely to build the best house he can given zoning constraints, and in a dense place, that may very well be a multi-family building.  Over time, neighborhoods tend to become denser.

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