With all the discussion on the value of Irish development land going on currently, I thought it would be interesting to look at what has happened to land values in the US during the current downturn. The degree of variation between regional markets may be useful in giving a feel for what is “normal” in the context of current tough times.
The chart below draws on city level data on 46 major US cities which distinguishes between land value and “structure cost” of residential properties. While it refers to buildings that are already in existence, the land value component should give a reasonable degree of guidance as to trends in the the value of undeveloped land suitable for development in those cities.
(Data source: http://www.lincolninst.edu/subcenters/land-values/data/2009-07-DAVIS-PALUMBO.DATA.XLS )
The most interesting thing about the chart is the extreme degree of variation between cities. While the most common level of fall lies in the range 30-40%, values have barely fallen in some cities (Houston and Buffalo), and have fallen by in excess of 80% (Phoenix, Cleveland, Atlanta, Tampa) and even 90% (Minneapolis-St.Paul, Detroit) from peak in others. What that means in the Irish context, is that almost any conceivable level of fall in the land value of property lies within the range of current US experience.
Land value has been much more volatile than structure cost in the US data, presumably because there has been less scope for construction pay rates and the cost of construction materials to change. In this context, it is interesting that Irish construction costs (as measured by the SCS Tender Price Index) are about 24% below peak.
