Monday, May 21, 2007

Zoning Laws (Part 9) McMansion Suburbia

Read entire series here.

SuperSize me. American suburbia has entered a phase where house sizes are continually increasing for the same (or smaller) size families that live in them. This is often criticized as consumerism run rampant, is looked upon as an increase in selfishness and materialism, and is preached against by both environmentalists and religious leaders. But a closer look reveals something different.

Since zoning laws dictate minimum lot sizes, and thus limits the availability of lots, an artificially high price of land results. This is true of land prices, but not of construction costs. So over time there is an increase of land value versus house value. The piece of dirt is the biggest factor in the price of a home. What this does is creates a false sense of value through building a larger house. If a buyer could buy a 1000 square foot house for $1.1 million and a 3000 square foot house for $1.2 million, most are likely to opt for the latter. Those marginalized people who can afford a $1.1M house, but not a $1.2M house will simply buy the 3000 square foot house in the next community level down. Living life in one's house is more important than living on the land that house is on, even though the land costs more. For only 10% more money, one can obtain three times the house on the same piece of land. So, for the value, the largest house makes the most sense. Developers know this very well. People want a house, but the land is the biggest cost.

This has led to the latest building fad here in the San Francisco area, known as the "knockdown." People are now buying houses, let's say a ranch house built in the 60's, and they don't like the ugly architecture or small size. They bulldoze the house, because it's value is so small compared to the land on it. They then build a new, larger house in its place. It sounds ridiculous, but it makes economic sense.

Now something about value. Buying the "family size" product at the store is of value because at a larger size, the cost per unit is lower. It is more valuable for a family to buy this size than twice the amount of the regular size. But there's a side to it that we tend not to think about. For the individual, actually buying the smaller size, even though it has a higher cost per unit, can have the most value. If the bulk size item is too large for me to consume and will go bad before I can use it, or if I don't have the space to store it, then the smaller size is the best value for me because I won't be wasting money on something I can't fully use.

But for many people, zoning laws actually prohibit them from gaining the best value in land because the smaller size land item is unavailable. Imagine that. Getting a good land value is against the law! So people simply do what is the next best thing. Value is transferred from the land to the house. McMansion suburbia has more to do with reacting to zoning laws than with greed and selfishness.

Part 8 . . . . . . . . Part 10

No comments:

Post a Comment