I built an interactive model showing the basic math that drives the value of raw land The key takeaway: The price of land primarily reflects the likelihood you'll be allowed to build something there, not the dirt

People often send me links to gorgeous, shockingly cheap land. I'm honored they think of me, but there's a reason it's so cheap… you can't build anything on it! For example, this ranch that's on sale for $1,495/acre:

"Entitlement" is the process of getting permission to build, and it is long expensive and uncertain, especially in California But if you succeed, the land value can multiply overnight A few things that jump out when you play with the interactive model:

1. Price-per-lot sensitivity is steep → you should over-invest in placemaking Placemaking is one of the highest leverage things you can do for your bottom line If spending $2M on nicer streets lifts prices by $10k/lot across 700 lots, that's $7M more revenue — a 3.5x return

2. Fixed infrastructure cost → more units means more profit per unit The costs of roads, utilities, and grading don't scale linearly with each additional lot More units not only increases total profit but also increases profit per unit, since the infra is spread over more lots

3. Infrastructure costs compound → accelerating absorption pays off the debt faster If you’re using debt to fund the infrastructure, the carrying costs compound. A one year delay is economically equivalent to a meaningful increase in your infrastructure cost

4. Fixed infra cost also means there's a minimum project scale below which nothing pencils This unfortunately locks out small developers from most land development, by creating a barrier to entry purely based on capital requirements

5. Phasing helps a lot Build infra for Phase 1 only, use early revenue to fund later phases. That way your debt clock doesn't tick on the full cost from day one Phasing also de-risks the project: if market conditions shift, you've only committed to a fraction of the total infrastructure spend.

Land cost should be a function of N(units), not a parameter: when zoning is a constraint, land with higher option value will have a higher price. (Or if land cost is sunk, include a term for cost of entitlement C(N).)

In regions where all land is both unrestricted (no zoning, no min lot sizes or setbacks, etc) and developable (soil percs, drillable wells, etc), does the “primarily” part of your key takeaway disappear?

@drydenwtbrown Turns out governance is worth more than land the governance sits on. The left will tell you otherwise.

Welcome to urban economic theory 101. It's not just how mich you can put on the land, it's how close it is to where people want to live.

My land was $2000/acre and the only permits are for septic and wells.

I LOVE LAND ECONOMICS

Also *what kind* of something you’ll be allowed to build there.

Yep can confirm as somebody who does RE in the Monterey Bay your ability to actually build something here and navigate the entitlement process is where the value is. And around here big part of that is water.

So cool! Can we play around with the model?

This is really cool

Yep, by far. Followed, probably, by whether it has any water. e.g. - water rights and whether you’ll find any water if you dig for a well.

@drydenwtbrown Elegant. Well done

@Scouting4Land @submasterstrat

at what annual rate does land compound on the top 5 markets in USA?

super cool. What would be the main drivers that makes this curve parabolic instead of strictly linear?

Is there a way for you to share this? would love to use it

@drydenwtbrown Awesome tool. Helpful for aspiring developers to understand the economic cost of lack of density. The economic cost of delays etc.

Very nice. I’ll see if I can calibrate something like this to NYC, to illustrate the often-misunderstood “zoning capacity”. People often claim “zoned capacity exists => we’re not constrained”. That’s false, but it’s not intuitive. Tools help and this is a great inspiration!

Wonder what's the median time it takes to change zoning on a city/town. We could plug some forecasts related to changes in zone permits if this isn't insanely long term.

How about regional ratios?

If only politicians weren't medically retarded they'd be able to use this tool.