Dirt moguls: Why it’s better to own a dirt lot than an old building in a housing boom
According to new research from the Federal Housing Finance Agency reviewed by TheWashington Post, the value of land in hot real estate markets rises faster than value of houses in those same markets.
While real estate is a good investment for people who have enough money to buy houses and apartment complexes, it make fortunes for the people who can afford to sit on a plot of sweet, tenantless dirt.
The haves and the have-dirts
Like houses, land is most valuable in developed areas: An acre of the brown stuff is worth 7.5k times as much in Brooklyn Heights as it is in rural Arkansas.
Yet, when real estate market heats up in a particular city, landowners benefit far more than homeowners. The first reason for this is obvious: You can build more houses, but you can’t build more land.
But the second reason is more complex: Since developers need to buy land before they create buildings, landowners can always cash out before homeowners — and they don’t need to remodel their condo to do it.
Research shows that huge spikes in land prices are accurate predictors of subsequent housing busts. So, when housing markets hit the fan, landowners can sell their dirt right away (or hold onto it until prices go back up).
On the flipside, building developers are often stuck with expensive construction or renovation projects, with no way to recoup all the money they spent.
Long story short: If you happen to own a dozen vacant lots in Seattle… You’re doing all right.