I’ve been thinking about land markets as of late and so today I thought I would share a post by Toby Lloyd that I recently discovered called: Understanding and adapting the land market is key to solving our housing crisis (2014). It’s from the London School of Economics’ British Politics and Policy blog.
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.
Today I spent the day at the Land & Development conference here in Toronto. If there was one running theme throughout the day, it was: “Holy shit, I can’t believe that X piece of land sold for $Y million. How will they (the developer) ever make the numbers work?”
Outside of the real estate development community, there’s often the perception that developers are building everywhere and that there’s lots of land left in cities, like Toronto. When you see all the cranes in the skyline, it naturally seems like we’re building a lot. Things seem easy.
But the reality is that it’s extremely difficult to find “land” in markets like Toronto and Vancouver. And by “land”, I mean properties that can be feasibly acquired/assembled, entitled, developed, and then brought to market. The way the speakers today spoke about land it’s as if it were a rare precious commodity.
I say all this, not to complain about how tough things are, but simply to shed light on the process. A developer’s job is to take a piece of property and figure out a way to create additional value. But to do that, they need to find a suitable piece of real estate. “Land” is an input.
This has implications for consumers, because inputs turn into outputs. And if one of the inputs is becoming scarcer, then it’s pretty safe to assume that the outputs, such as new housing, are also becoming scarcer.
One of the most common questions I get from readers of this blog is: How do I become / get into real estate development?
In fact, I get it so often that I’ve decided to write a book as my response. It may be a short one or it may end up a long one. If you’ve emailed or messaged me with this question and I haven’t responded, I’m sorry. There’s a lot of you out there. But I do want to help and that’s why I’ve decided to take on this hobby book project.
As part of the book, I’ll be talking about my own journey, as well as the actual nuts and bolts of development. But I would also like to feature some much more established players in the business. In order to do that, I’ve decided to crowdsource some of the content for this book.
So here’s my ask to you: If you’re a real estate developer and would like to share your story, please complete this short questionnaire. You can be located anywhere in the world.
My plan is to select a handful of developers from around the world and then feature their stories, one-by-one. I’m confident that there will be a lot of interest in hearing how successful developers established their careers and/or own businesses.
I’ve been thinking about doing this for quite awhile now. It feels good to get started.