Land basis

Land basis is what a site has cost by the time construction begins. It starts with the purchase price but grows to include brokerage and closing costs, legal fees, surveys and environmental studies, demolition, carrying costs while the site is held, and the cost of securing entitlements. Developers track it per unit or per buildable square foot, because that is the form in which it competes with construction cost for the same rent dollars.

Land is priced by what can be built on it. A developer working backward from the rent a finished building can achieve, less the cost to build it and the return investors require, arrives at a residual: the most it can pay for the land. This is why zoning that allows more homes on a site tends to raise land prices per acre while lowering land cost per unit, and why rules that add cost to construction tend, over time, to push land prices down.

Land basis per unit = total land cost ÷ number of units

In our illustrative building, land is $2,400,000 of a $24,000,000 total, or 10% of cost. That share varies enormously between places; in expensive coastal markets land can be a much larger fraction, and in others it is smaller. What does not vary is the mechanism: land basis divided by the units it supports is a fixed cost every rent must cover, which is why density is the main lever on it. We cover this in Land.