I like looking at real estate values over longer periods of time because it helps to put things into perspective.
Below is a land value index for Manhattan running from 1950 to 2014 that was recently created by economists out of Rutgers University.
The study was also cited in this recent article by Richard Florida.
Here are some of the highlights from their study:
We find three major cycles with land values reaching their nadir in 1977, just after the city’s fiscal crisis.
Since 1993, land prices have risen much faster than population or employment, at an average annual rate of 15.8%.
We estimate the entire amount of developable land on Manhattan in 2014 was worth approximately $1.74 trillion.
We estimate the long run return to Manhattan land values [since the island was first inhabited by Dutch settlers in 1626] to be about 6.4%.
What’s fascinating to me is the accelerated appreciation. The index starts at 100 in 1950, ends up slightly above that by 1993, and then simply takes off.
I am a big fan of Malcolm Gladwell, and not just because he’s Canadian and went to the University of Toronto (my alma mater), although those facts certainly don’t hurt.
I like looking at real estate values over longer periods of time because it helps to put things into perspective.
Below is a land value index for Manhattan running from 1950 to 2014 that was recently created by economists out of Rutgers University.
The study was also cited in this recent article by Richard Florida.
Here are some of the highlights from their study:
We find three major cycles with land values reaching their nadir in 1977, just after the city’s fiscal crisis.
Since 1993, land prices have risen much faster than population or employment, at an average annual rate of 15.8%.
We estimate the entire amount of developable land on Manhattan in 2014 was worth approximately $1.74 trillion.
We estimate the long run return to Manhattan land values [since the island was first inhabited by Dutch settlers in 1626] to be about 6.4%.
What’s fascinating to me is the accelerated appreciation. The index starts at 100 in 1950, ends up slightly above that by 1993, and then simply takes off.
I am a big fan of Malcolm Gladwell, and not just because he’s Canadian and went to the University of Toronto (my alma mater), although those facts certainly don’t hurt.
I’m late to his podcast, Revisionist History, so in case some of you are as well, I would encourage you to check it out. Every episode reexamines something from the past and questions: Did we get it right the first time? It’s very Gladwell. It’s a must listen.
The episodes span a secret research project setup by the Pentagon in downtown Saigon during the Vietnam War to why rich people are obsessed with the game of golf. Spoiler: He hates golf.
The golf episode will be of particular interest to many of you because it deals with real estate. Malcolm wades into something known as California Proposition 13, which is a constitutional exemption that keeps property taxes artificially low.
It is what has allowed these “vast, gorgeous, and private” golf courses to continue to exist in expensive cities like Los Angeles. Otherwise they would have long ago drowned under the property taxes following reassessment.
This also leads to a philosophical debate about what constitutes a change in ownership, since many clubs are member owned and Proposition 13 requires that there not be a change in more than 50% of the ownership.
But I’ll stop there. Give it a listen. Malcolm is just excellent.
Photo by Rémi Müller on Unsplash
His argument, as the title suggests, is that we need to dig deeper and look at how our land markets are functioning if we want to address some of the challenges facing our cities today.
The post is obviously written from a UK perspective, but many of his points will probably ring true for a lot of you in the industry. One remark that stood out for me was his point about developers always operating at the margins:
“The result of the land auction process is that the worst scheme, the one that offers the least to the community, the poorest quality homes, and charges the most for them, is generally the one that will happen, because this is the one that offers the most cash up front to the landowner. As a result, development is always already at the margins of viability. Even a relatively small shock can see construction grind to a halt rapidly, because there is simply not enough margin left after the landowner’s cut has come out for the developer to want to build.”
When it comes to building, most people tend to think about the developer, the architect, and so on. But what I think many people overlook is that this entire process starts with a land input and a landowner. And the cost, availability and usability of that land input has a significant impact on everything that happens downstream.
I’m late to his podcast, Revisionist History, so in case some of you are as well, I would encourage you to check it out. Every episode reexamines something from the past and questions: Did we get it right the first time? It’s very Gladwell. It’s a must listen.
The episodes span a secret research project setup by the Pentagon in downtown Saigon during the Vietnam War to why rich people are obsessed with the game of golf. Spoiler: He hates golf.
The golf episode will be of particular interest to many of you because it deals with real estate. Malcolm wades into something known as California Proposition 13, which is a constitutional exemption that keeps property taxes artificially low.
It is what has allowed these “vast, gorgeous, and private” golf courses to continue to exist in expensive cities like Los Angeles. Otherwise they would have long ago drowned under the property taxes following reassessment.
This also leads to a philosophical debate about what constitutes a change in ownership, since many clubs are member owned and Proposition 13 requires that there not be a change in more than 50% of the ownership.
But I’ll stop there. Give it a listen. Malcolm is just excellent.
Photo by Rémi Müller on Unsplash
His argument, as the title suggests, is that we need to dig deeper and look at how our land markets are functioning if we want to address some of the challenges facing our cities today.
The post is obviously written from a UK perspective, but many of his points will probably ring true for a lot of you in the industry. One remark that stood out for me was his point about developers always operating at the margins:
“The result of the land auction process is that the worst scheme, the one that offers the least to the community, the poorest quality homes, and charges the most for them, is generally the one that will happen, because this is the one that offers the most cash up front to the landowner. As a result, development is always already at the margins of viability. Even a relatively small shock can see construction grind to a halt rapidly, because there is simply not enough margin left after the landowner’s cut has come out for the developer to want to build.”
When it comes to building, most people tend to think about the developer, the architect, and so on. But what I think many people overlook is that this entire process starts with a land input and a landowner. And the cost, availability and usability of that land input has a significant impact on everything that happens downstream.
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