Image of the day: land cost per square metre of floor space in Auckland
Much cheaper after 2016 upzoning
From Cooper, Greenaway-McGrevy, and Jones, Measuring the Cost of Land Inputs to Housing Construction (2022). Appears as Figures 34 and 35 in SSMUH and TOA Scenarios in British Columbia (2023).
When you’re allowed to build more housing on a parcel of land, e.g. a six-plex at 1.8 FSR (7200 square feet of floor space on a 33x122 lot) instead of a single house at 0.6 FSR (2400 square feet), the price of the land goes up, but the cost of the land per square foot of floor space goes down. Where land is scarce and expensive, this reduces the cost of each square foot of housing.
This image shows empirical data from Auckland’s 2016 upzoning.
In the top graph, we can see that the price per square metre of land in the upzoned Terrace Housing and Apartments areas (blue) increased, compared to the non-upzoned Single House areas (purple).
But because you can now build 3X as much floor space on the same land, the bottom graph shows that the cost of land required to build a square metre of floor space was considerably lower in the Terrace Housing and Apartments areas (blue) compared to the Single House areas (purple), by roughly half.
When you’re trying to reduce the cost of housing in an expensive area, where land prices are high, this helps a lot.
Generally speaking, the more expensive the land is, the more floor space should be allowed, to reduce the cost of land per square foot of floor space. (A rule of thumb is that for a new building, the cost of land should be about 20-25% of the total cost: that is, you should be able to build floor space that’s worth about 4-5X the land cost. See Glaeser and Gyourko 2018, and Box 1 of Dachis 2023.)