COMMENT OF THE DAY: WHY THEY AREN’T BUILDING ON THE VACANT LOTS “Spoonman hit the nail on the head. Speculators jack up the price of open land so far that it pushes developers to buy existing buildings. This is also why you don’t see a rush of new construction immediately adjacent to light rail lines. My advice to the owners who haven’t already sold: do what the speculators do; hold out for more money. If Hines wants your house bad enough, they’ll pay it. I usually don’t advocate for this kind of thing, but if everyone did it, it might help push development back to open land.” [ZAW, commenting on Hines Buying Up Museum District Property To Build Highrise Apartments]
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They should tax undeveloped land/surface parking lots in prime areas such as downtown at a higher rate to encourage development and reduce speculation.
The more I think about it the more I think this line of argument is fundamentally flawed. What incentives or beliefs is the “speculator” on a vacant property expected to have that the owner of a property with improvements would not? They can both expect the price of the property to rise if they hold onto it a little longer.
On the other hand the owner of an improved parcel has an income or value producing asset in that improvement. There is also the possibility that the improvement is a home where the owner has made a life and seen their children grow. This sentimental value would lead us to expect that the homeowner was more likely than a “speculator” to value the the parcel above the market price.
Most of the speculators on lots inside the loop are not in it for a quick flip, but have a long term strategy for their portfolio. People holding land for long term investments will pass up offers because it just doesn’t fit in with their investment strategy to sell at that time. Real estate in a good market is a great place to park money. If the market looks like it will only continue to climb and there is no good opportunity to reinvest gains, the investor with an eye on a long term hold will happily wait until the time and price are right. By contrast, when a guy in an expensive suit knocks on your door and tells you that he is building a high rise on your block with or without you and gives you 30 days to accept a reasonable cash offer, you tend to not want to buckle down for the long haul with 2 years of construction and property value crushing development next door. Homeowners are far more likely to respond favorably to carrots and sticks than long term investors.
Good point, Awp. In fact, a lot of the surface pay-parking lots that you see downtown are really just speculative land investments. Speculators contract with Ampco or some other parking lot operator to generate income while they sit on the property. The income offsets the taxes they pay on the land. At least, that’s my understanding of it.
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If you’re a speculator, however, the last thing you want is the headaches that come with owning an office building, or a shopping center, or God forbid Apartments. There are always repairs to be done, tenants who are unhappy, leases that are up, building code violations to deal with. If you’re an Investor who specializes in these types of properties, then it comes with the territory. But if all you want to do is speculate, then open land, or something simple like a parking lot, is a lot less hassle.