Re: Lot Development Model
From: Pablo Halpern (phalpernworld.std.com)
Date: Wed, 19 Apr 95 11:04 CDT
> From: mac [at] happyvalley.com (Mac Thomson)
> 
> Pablo, you state that in the case of selling completed houses rather than
> lots, "We rely on the developer's ability (we are the developer, in this
> case) to sell larger, more expensive units at a smaller land cost/final co
> ratio than the smaller, less expensive units."  But this land cost/final c
> ratio is *always* going to be smaller for more expensive houses given tha
> the land costs are the same.  This holds true for houses built individuall
> upon purchased lots as well as purchased completed houses.  To illustrate
> using your example:
> 
>     Land (& Common Fac)     House     Total     Land/ Total Cost Ratio
>           $100K             $120       $220                  45%
>           $100K              $80       $180                  56
>           $100K              $60       $160                  63

Yes, that is true. I should have refered to the *market value* of the house 
instead of its *final cost*. The market value for large houses have an *even 
lower* land cost/market value ratio than the above numbers indicate. The 
house that cost $120K + $100K to build may have a market value of $250, not 
the $220 number above.  The house that cost $60K + $100K to build, may have 
a market value of only $140K, which is less than the $160K total cost. 
Selling the $250K-valued house for only $220K would be a value for the 
buyer. Selling the $140K-valued house for $160K could price the smaller 
house out of range.

> Do you feel that they're "getting shafted" because the $160K smaller house
> "way above market rate for such a small house"?  That could be because th
> market doesn't demand a small house on such expensive land.  To the market
> cheap house and expensive land may be a bit of an incongruous package. 
> Subsidizing may be the only way to bring the cheap house in line with mark
> rate, but this strategy should be openly recognized and accepted by the wh
> group, especially those in the large houses who are going to be paying th
> premiums to subsidize those in the small houses.

Exactly, although the "premiums" may not be more than the regular premium of 
dealing with a developer trying to make a profit. In our case, we use that 
"profit" to "subsidize" the cheaper houses. Our group, and I suspect others, 
had a couple of goals that were hard to reconcile. One was to find pretty 
land in a town with good schools within a 40 min non-rush-hour drive from 
Boston. The other was to be affordable to the people in the group. After a 
year of frustrating land searches, the best we could find was an expensive 
piece of land that met the first goal. We took advantage of these "developer 
economies" to meet the second goal (barely). As a result, nobody is getting 
a bargain, but we will have a more economically-diverse group because of it. 
With economic diversity also comes the possibility for age diversity, 
family-size diversity, and ethnic diversity.

It may be more fair, by some definition, to split the land cost evenly, but 
you have to look at what you're giving up. If your land, infrastructure and 
permitting costs are not high, you may not have to give up anything. In our 
case, we had to compromise.

I hope this is clearer.


- Pablo

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Pablo Halpern              (508) 435-5274         phalpern [at] world.std.com

New View Neighborhood Development, Acton, MA, U.S.A.
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