Home Size vs. Lot Size – What Creates Value?

Everyone knows the old real estate adage of “location, location, location.”  But once you have the location, what do you do with it?  This is a question that buyers, sellers, Realtors, and developers all have an interest in answering and sometimes they are at odds with each other.   There have been trends in the last decade we have seen lot sizes getting smaller and the homes are getting larger.  The article below has some good suggestions on why this could be:

Home Trend Watch: Upsized Homes on Downsized Lots.

Certainly here in Baton Rouge, Ascension and Livingston parishes, new developments are following this trend as well.  The idea behind them is similar to what the article described, with highly-appropriated homes on small lots at an affordable price.   On the surface, this seems great for everyone involved.  But I do have some serious reservations about the long-term outlook on such developments and what exactly will create value over time.

My concern is that larger land sites in ideal locations will become extremely scarce.  In Ascension especially, even a 1 acre homesite in an existing area is tough to come by at a reasonable price.  Finding new construction on a 1/4 to 1/3 acre lots is becoming a challenge in the high-volume world of spec home building. In my opinion, developers have learned they can sell more homes in the same space as they once used to, and therefore generate more revenue for the same piece of land.  But as these homesites get smaller and smaller, will we see less aggressive rise in appreciation value as their larger-sized competition in a similar area?

Newly developed homes are larger and are featuring great amenities – granite countertops, stainless appliances, tankless water-heaters and other high-efficiency upgrades – at the expense of smaller lots, driveways, parking etc.  But will those things be enough, over a 20-30 year investment period, to make up for the lot size which have traditionally driven appreciation?  In other words, if we continue to create such homogenous developments to where there is little to discern among them, where is the value going to come from?

What do you think has been the biggest contributor to the decrease in lot sizes – buyer demand for smaller lots or developers maximizing returns by selling more homes at affordable prices?


David

 

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