Analysis from Redfin shows that in expensive housing markets like San Francisco, San Jose, and Los Angeles, land prices account for more than half of a typical home’s value.
The amount of the typical home’s value accounted for by land tends to be the highest in the expensive coastal markets. For example, a parcel of vacant land in San Jose can cost $500,000 or more. Add to that the costs of building materials, acquiring permits and construction labor, a new home would need to sell for over $1 million in for the developer to break even. This suggests that potential homebuyers who could have afforded to buy a home priced closer to the cost of constructing it are priced out because the high cost of land makes the final price of the home unaffordable. By contrast, the reason why San Antonio or Cincinnati are affordable is because the value of land only makes up roughly 20 percent of their home values, the rest being the cost of the structure.
Los Angeles has the highest percentage of housing values tied up in land prices, at 60.9%. It was followed by San Jose (60.4%) and Santa Cruz, (58.0%) Calif. Huntington, W.V., (14.7%) and Buffalo, N.Y., (15.9%) saw the lowest costs of land.
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