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August 2019

Land costs far outpacing inflation, driving up home prices

August 5, 2019

JCHS logoLand values for single family housing in the United States rose nearly four times faster than inflation between 2012 and 2017. The run-up in values resulted in a 27 percent jump in the median price per acre, according to the 2019 State of the Nation's Housing report, a publication of the Harvard Joint Center for Housing Studies.

Commenting on the escalation, Alexander Hermann, a research analyst with JCHS, noted construction costs vary somewhat from one location to another, but said "the real driver of home prices is often the varying value of land."

The JCHS analysis showed the median price per acre of land increased from $159,800 in 2012 to $203,200 in 2017. (Prices per acre are for land occupied by single family homes.)

Both King and Snohomish counties experienced gains of around 87 percent during the same time period. In Snohomish County, prices rose from $382,200 in 2012 to $714,600. King County, prices jumped $592,900, from $685,900 in 2012 to $1,278,800 in 2017.

FHFA's data show the median price per acre of land increased in 80 percent of U.S. counties during the 2012-2017 timeframe. Among regions, the West had the most counties (92 percent) reporting jumps in land prices.

Authors of the report described differences within metropolitan areas as "striking," noting price increases were especially sharp in the core counties of metros with over a million residents. Prices in the suburban counties of the large metros increased by 37 percent and were even more modest (up 17 percent) in metros with fewer than a million people and in non-metro areas (up 4 percent).

Hermann said FHFA figures show the median price per acre of land tops $500,000 in one of every ten counties in the U.S. Areas with such prices include most of coastal California, much of the Northwest, as well as parts of the metro areas around Seattle, Portland (Oregon), Honolulu, Denver and Miami.

"Since land represents a large share of the value of homes in much of the country, these rapidly rising land values are a key driver of recent home price increases-along with labor constraints, building materials costs, and undue regulatory burdens," stated Hermann, adding, "Combined, these factors make it increasingly difficult for homebuilders to construct new modest-cost housing, which could accommodate the growing demand for starter homes by millennials aging into peak homebuying years.

Analysts at JCHS believe finding ways to slow the rise in land prices "will be an important part of any effort to address the continued challenge of making housing affordable for more people."

FHFA's dataset used by the Harvard researchers is based on 16 million appraisals of single-family homes in counties containing 835 percent of the nation's population. Some of their findings were used to create an interactive map that compares changes in residential land prices since 2012.

The Harvard Joint Center for Housing Studies, through its research, education, and public outreach programs, helps leaders in government, business, and the civic sectors understand housing issues and make decisions that address the needs of cities and communities.