Land, that irreplaceable commodity, is getting lots more expensive. Buyers are even tearing down houses to get to it.
Since the big surge in home sales and refinancing started earlier this year, single-family lot prices have escalated by an average 20% in prime real estate hot spots throughout the nation.
The increases range from lows of 10% in Phoenix and Atlanta to 100%, surprisingly, in Nashville. For Californians, accustomed to paying the most for their homes and their land, there may be some consolation in knowing that such places as Nashville, central New Jersey, Philadelphia and Washington have had the greatest land price increases from mid-1985 to mid-1986.
Nevertheless, costs of terra firma in the West increased considerably. Typical home sites in Orange County and Sacramento jumped by 25% during that span, 20% in San Francisco and Oakland, 15% in Los Angeles and San Diego, and 10% in Seattle. The increase in Orange County translates to a $70,000 price per lot, highest in the nation.
Elsewhere on this page, a story by Ruth Ryon deals with the "hot market" throughout the Westside, where moneyed buyers think nothing of purchasing a costly "tear-down" for demolition, followed by construction of an even more expensive new home.
They don't want someone else's dwelling; they want the land under it as the site for their own, new dream house.
This boom in land prices is a natural companion to the nation's current housing sales and construction boom. Builders are forever seeking developable land--parcels to subdivide into lots of lots for homes.
All this is underscored in the annual study of lot and land prices by one of the nation's largest mortgage bankers, Dallas-based Lomas & Nettleton, in its U. S. Housing Markets report. For instance, typical lot costs in Los Angeles now range from $25,000 to $40,000, including special fees, which the builder normally passes along to the home buyer.
While Nashville's lot preparation costs jumped by 100%, the lot prices range from only $18,000 to $25,000. In central New Jersey, a burgeoning bedroom area, lot costs range from $45,000 to $60,000. San Diego lot prices range from $40,000 to $60,000, while San Francisco-Oakland prices range from $35,000 to $60,000. In Sacramento, the prices range from $25,000 to $33,000.
"This year's upsurge in housing demand took most builders by surprise," said Wayne D. Ferguson, executive vice president of Lomas & Nettleton Land Corp. "They managed to expand their supplies of other house components fairly rapidly . . . but it takes a long time to convert raw land into finished lots, from six months (assuming good weather) in Atlanta and Phoenix, to as much as six to eight years for large tracts in San Diego."
In Nashville, the value of farmland near the General Motors facility--where its Japanese-styled Saturn cars will be manufactured--"land prices have increased 15-fold in less than three years."
In the area around the nation's capital, the scramble for building lots is "out of control" and in the usually unobtrusive realty market of the twin cities of Minneapolis and St. Paul, prices have "gone wild."
"In the Washington area and in central New Jersey and Philadelphia, you can't buy a finished lot. Builders that have any won't part with them even at double their cost," Ferguson said.
The highest lot-to-house price ratios are in the major California markets. Where else? They range from a 33% minimum lot preparation cost up to 50% in prime areas.
"This year's land boom is centered in the Frost Belt and is largely confined to lots and land for single-family detached homes," Ferguson said, and is mainly "tilted to bigger lots for bigger homes.
"The Sun Belt had its land boom in 1983-84. Currently, its single-family land markets range from 'boom' as in Nashville, to 'raw land bust' as in Austin. But the typical pattern is one of flat land prices and modest increases in lots."
Conversely, he noted that land costs for apartment construction have softened almost everywhere since early spring when it became evident that Congress would place significant limits on real estate tax shelters.
The old bromide about land is that they just aren't making any more of it. Today's reality is that its costs will never get down to earth.