Keeping Country Club . . . Country Club
My law-practicing days (in the early '90's) are fading fast, but I do recall a basic principle about constitutional (vs. unconstitutional) zoning restrictions: general rules with a strong public policy component work, overly specific ones don't.
So, cities that don't want Wal-Mart's can't simply pass an ordinance saying, "no Wal-Mart's." Rather, they have to pass an ordinance prohibiting "retail buildings bigger than 200,000 square feet within city limits."
What makes me think of this is various local cities' efforts to control tear-down's, and specficially, McMansion's.
The city's goal may very well be to ban tacky, lot-devouring McMansion's. However, for legal reasons, the city's tack has to be more general.
Like, "no tear-downs of historically significant, pre-1944 residential structures in the Country Club neighborhood" (my paraphrase).
That's how Edina does it, anyways.
Is it effective?
Take a drive through Country Club, and you'll have your answer.
Showing posts with label zoning. Show all posts
Showing posts with label zoning. Show all posts
Monday, June 29, 2009
Tuesday, August 12, 2008
Tear-Down Economics
From Worst to First,
or, Housing "Leapfrog"
More than one would-be Seller has quietly harbored the hope that they wouldn't have to spend big money getting their home ready for market -- or face Buyers beating them up on their home's condition -- because, after all, "it's probably a tear-down." Unfortunately, more than 95% of the time, they're wrong.
Forget that many people are retrenching now in the face of a tough economy, or that new home construction is down dramatically and many builders are in full retreat. Most homes aren't tear-down's for the simple reason that the block won't support the new home's price.
Saved by the Wrecking Ball?
First, a caveat. Subject to local zoning rules and your neighbors' forbearance, your home is still your castle. If you want to tear it down and build a new one -- and have the money -- you probably can, even if it makes no economic sense whatsoever. There are plenty of examples where, either because of the owner's attachment to a particular piece of land, long-standing social ties on the block, etc., the location is decided first, the home (and building budget) second.
However, most people contemplating doing a tear-down at least pause to calculate whether it's a good investment. And if it's a builder contemplating doing a new "spec" home (as in "speculative," or, "build it and they will come"), that's the ONLY consideration.
Rules of Thumb
So, you start at the end: How expensive can a new home on the block be before it sticks out? If prevailing prices nearby are $600k - $800k, you can probably go as much as 20% higher (to around $1M), especially if the neighborhood trend is clearly up. However, anything more than that is risky. After all, if your budget for a new home is $1.5M, you'd probably want to build it on a block where the other homes also cost that much.
The other relevant consideration is the established ratio of land to home prices. Conventionally, land accounts for 25%-33% of the total land-plus-home cost. So, most $1M homes sit on lots worth $250k to $333k. Again, common sense suggests why: a $1M home on a $500k lot would feel undersized, while the same home on a $100k lot would seem ridiculously out-of-place.
Combine the foregoing and you come up with a fairly accurate rule of thumb: if the cost of the tear-down multiplied by 3.5 doesn't overshoot the top of the block, the home's a legitimate tear-down candidate. If it does, the answer's "no."
Housing "Leapfrog"
Note that the condition of the home isn't necessarily a consideration.
There are plenty of well-built, well-maintained homes scattered through expensive parts of Edina, Minnetonka, and around the City Lakes that have been torn-down that were not in disrepair. Rather, they typically were the "runt" on a choice block where the surrounding homes gradually became larger and more valuable (or abruptly -- I can name at least a couple Twin Cities neighborhoods that have seemed to metamorphose overnight!).
Because the margins on a luxury home are fatter than on a more modest home, builders will typically try to find the least expensive house on a block and replace it with the most expensive -- a process that can look like a game of "Housing Leapfrog."
or, Housing "Leapfrog"
More than one would-be Seller has quietly harbored the hope that they wouldn't have to spend big money getting their home ready for market -- or face Buyers beating them up on their home's condition -- because, after all, "it's probably a tear-down." Unfortunately, more than 95% of the time, they're wrong.
Forget that many people are retrenching now in the face of a tough economy, or that new home construction is down dramatically and many builders are in full retreat. Most homes aren't tear-down's for the simple reason that the block won't support the new home's price.
Saved by the Wrecking Ball?
First, a caveat. Subject to local zoning rules and your neighbors' forbearance, your home is still your castle. If you want to tear it down and build a new one -- and have the money -- you probably can, even if it makes no economic sense whatsoever. There are plenty of examples where, either because of the owner's attachment to a particular piece of land, long-standing social ties on the block, etc., the location is decided first, the home (and building budget) second.
However, most people contemplating doing a tear-down at least pause to calculate whether it's a good investment. And if it's a builder contemplating doing a new "spec" home (as in "speculative," or, "build it and they will come"), that's the ONLY consideration.
Rules of Thumb
So, you start at the end: How expensive can a new home on the block be before it sticks out? If prevailing prices nearby are $600k - $800k, you can probably go as much as 20% higher (to around $1M), especially if the neighborhood trend is clearly up. However, anything more than that is risky. After all, if your budget for a new home is $1.5M, you'd probably want to build it on a block where the other homes also cost that much.
The other relevant consideration is the established ratio of land to home prices. Conventionally, land accounts for 25%-33% of the total land-plus-home cost. So, most $1M homes sit on lots worth $250k to $333k. Again, common sense suggests why: a $1M home on a $500k lot would feel undersized, while the same home on a $100k lot would seem ridiculously out-of-place.
Combine the foregoing and you come up with a fairly accurate rule of thumb: if the cost of the tear-down multiplied by 3.5 doesn't overshoot the top of the block, the home's a legitimate tear-down candidate. If it does, the answer's "no."
Housing "Leapfrog"
Note that the condition of the home isn't necessarily a consideration.
There are plenty of well-built, well-maintained homes scattered through expensive parts of Edina, Minnetonka, and around the City Lakes that have been torn-down that were not in disrepair. Rather, they typically were the "runt" on a choice block where the surrounding homes gradually became larger and more valuable (or abruptly -- I can name at least a couple Twin Cities neighborhoods that have seemed to metamorphose overnight!).
Because the margins on a luxury home are fatter than on a more modest home, builders will typically try to find the least expensive house on a block and replace it with the most expensive -- a process that can look like a game of "Housing Leapfrog."
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