In some markets, the land is more valuable than the home that stands on it.
Case in point, in San Francisco’s Sunset District, a fire destroyed a home for sale leaving it inhabitable. Despite that, last February, the home sold quickly for just under $1 million. Seven months later, the home was transformed into a four-bedroom home and sold for $1.77 million.
In San Francisco, land is a premium, and buyers often pay more for the land than the home is actually worth.
“Over time, the physical structure usually depreciates in value, while land appreciates,” realtor.com® notes in a recent article. “That’s because the property is in limited supply. Developers can stack more homes onto lots by building high-rises, but they can’t produce more land. And that’s why the value of land naturally goes up when population growth creates more demand.”
Lincoln Institute of Land Policy data provides a snapshot of the 10 housing markets where land comprises more than half of a home’s total value. The majority of the cities are in California, where buildable land tends to be scarcer. For example, in San Francisco, the average home value was $1.35 million in 2016. But about $1.09 million of that was attributed to the cost of the land, or 81 percent of the total price, the study found. On the other hand, in St. Louis, Mo., land is only about 10 percent of a home’s total value.
Here are the cities where land costs exceeds property values by the highest amounts:
- San Francisco, Calif.: 81%
- San Jose, Calif.: 77%
- Santa Ana, Calif.: 76%
- Oakland, Calif.: 71%
- Los Angeles, Calif.: 71%
- San Diego, Calif.: 66%
- Boston, Mass.: 60%
- Miami, Fla.: 54%
- Seattle, Wash.: 53%
- Portland, Ore.: 51%