Land

Land is the one input a developer cannot manufacture. Its price reflects what buyers believe can be built on it, so land cost and zoning are two sides of the same question: the same parcel is worth a different amount per unit at 40 homes than at 100. Developers think in terms of land basis per unit, not price per acre, because that is the figure that ends up in the rent.

Land also carries a cost while it waits. From the day it is purchased until the day the building opens, interest and taxes accrue with no rent to offset them, which is why long approval timelines show up as land cost. In this section we explain how land is priced, how density and floor area ratio change its cost per home, and what brownfield cleanup, infrastructure and site conditions add.

The counterintuitive part is that land price is usually a result rather than a cause. A buyer works backwards: what rent will the finished building support, what will it cost to build, what return does the money require, and what is left over is what the land can be worth. That residual is why an increase in construction cost or in interest rates lowers what a site is worth, and why a rule that removes homes from a parcel removes value from it too. Our articles here work that calculation in public, so a land price can be read as the arithmetic it is.

• Why does the same parcel cost more per home when fewer homes are allowed?
• How much of a monthly rent is land?
• What does holding land through an approval process cost?