If you’re a regular reader of my site, you know I don’t do a lot of raw land. But earlier this week I had the opportunity to work with a well known celebrity architect (you know, the kind that makes the covers of hip design magazines) to find land for his/her personal house. I ferreted out every piece of nice property I could find, listed or unlisted, through brokers and friends, on both sides of the Delaware River, from Livingston Manor to Barryville. I was actually shocked by how little vacant land, or at least good, interesting vacant land was on the market. (By the way, the architect’s land search was successful, and he/she will be building their house in this area.)
During the hot housing market a year or two ago, houses were in short supply, but raw land was abundant (and relatively cheap). On those occasions when I would work on a raw land search, I typically found a nice variety of parcels — affordable with interesting features.
Today, there’s a huge inventory of houses (well, not necesarily of nice, interesting and well priced houses, but of houses none-the-less) and land is scarce. As houses have gotten more expensive, I think a lot of potential buyers have turned to raw land to build, perceiving it as possibly a less expensive alternative. Just a few years ago you could pick up an outdated, less appealing little ranch house on some nice acreage for $125,000, maybe $150,000, and justify putting $50,000, $75,000 or even $100,000 into it for renovations or an addition and have a great getaway. And the renovated house could be resold for at least what was in it, or even a profit. Now owners of similar (but still butt ugly) houses think they’re sitting on gold and want $250,000 or even $300,000 for their little treasure. Put in $100,000 for renovations and a buyer is looking at $350,000 or $400,000 total. At those prices, it makes buying land and building more appealing.
A lot of buyers, however, way underestimate the cost of building. A stick-built house can cost $175 to $200 a square foot (yes, you can shave that, but not much below $150). A high end modern prefab like the Dwell House by Empyrean can run much higher than that, into the $250 to $300 a sqaure foot range. Even a more affordable pre-fab modern home, like the LV Home designed by Rocio Romero, can run $150 to $200 a square foot when you factor in site preparation costs, well and septic. (I have a page on my website devoted to Buying Land and Building for more information.)
In the city, real estate pros often talk about the balance between the cost of buying and the cost of renting. When they get way out of whack, they begin adjusting back into a relative equilibrium. The same can be said here for buying (and renovating) an existing home or building a new one. As folks have shifted to raw land and building, the cost of raw land has risen very rapidly as the supply has dwindled. Today, for a piece of nice land, with privacy and a nice setting, maybe a pond and view, a buyer is looking at $150,000 to as much as $300,000, and even more for large acreage property.
As the land inventory has dwindled, the housing inventory has increased. There are a lot of ‘butt ugly’ houses on the market on nice pieces of property that are crying out for a creative makeover — but they’re just too expensive to justify it. As those houses sit on the market, hopefully the prices on them will drop to a point that they’re just too irresistable to pass up. When ‘butt ugly’ houses were cheap, they attracted a number of investors with a creative eye, who turned as sows’ ears into silk purses at the same time they turned a profit, as well as owner-occupiers who did some great makeovers.
A new equibilibrium needs to get established, so an ugly house with potential is just too attractive to pass up and makes better sense to buy and renovate than buying a piece of raw land and starting from scratch.