Monday, November 24

The Basis for Urban Value

If we count all the money ever put into a city, both public and private funds, would it be close to the total real estate value of the properties in that city? This should weight the scales towards older cities which have enjoyed centuries of continuous development. This question comes up when we peel away the building and development costs of a project and arrive at the pure land costs of the property beneath the building.

In declining cities, the land costs can actually shrink and go negative. In this case, complete houses are available for less than they would cost to build. The old housing stock actually drives away new construction in those areas.

Meanwhile,in healthy cities, the value of underlying real estate can far outstrip the building cost component of the price. In these places, the building budgets are high since the developer runs nearly no risk of putting too much money into construction (overcapitalizing). Land value in such areas springs from years of intelligent investment in infrastructure, services, and development of the surrounding natural resources.

Maybe its not the amount of money invested in a city, but the wisdom with which it is invested.

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