in areas where land is competitive — i.e. those areas where LVT is most impactful — it’s common for developers to buy a lot, tear down an existing home, and then build a new one. consider:
lot with old home (O) → empty lot (E) → lot with new home (N)
if O → N is a value-positive transition, and it’s not possible to go there without passing through E, then both O → E and E → N ought to be value-positive. O → E is valuable because it reduces the amount of work required to reach the valuable (and more liquid) state N.
so why don’t we see more empty lots go up for sale in areas where it’s routine to redevelop lots? my guess is it’s just different types of friction coming together to create a transaction cost around selling empty lots. integrating that whole process from O → N overcomes the transaction cost, yielding more profit. maybe you can say “gosh, structure X would go great on lot Y or Z”, but you have no way of communicating “i’d pay $D for an empty lot Y or Z”, and so a meaningful market for empty lots never emerges.
but create a market for empty lots — i.e. reduce the transaction costs in that area and encourage separate specialization of O → E from E → N — and you should have much more data for calculating land values. i’m not sure how to create that market other than literally creating a marketplace and then incentivizing each side of the market to participate in your marketplace until it’s bootstrapped, i.e. the Uber approach.
in areas where land is competitive — i.e. those areas where LVT is most impactful — it’s common for developers to buy a lot, tear down an existing home, and then build a new one. consider:
lot with old home (O) → empty lot (E) → lot with new home (N)
if O → N is a value-positive transition, and it’s not possible to go there without passing through E, then both O → E and E → N ought to be value-positive. O → E is valuable because it reduces the amount of work required to reach the valuable (and more liquid) state N.
so why don’t we see more empty lots go up for sale in areas where it’s routine to redevelop lots? my guess is it’s just different types of friction coming together to create a transaction cost around selling empty lots. integrating that whole process from O → N overcomes the transaction cost, yielding more profit. maybe you can say “gosh, structure X would go great on lot Y or Z”, but you have no way of communicating “i’d pay $D for an empty lot Y or Z”, and so a meaningful market for empty lots never emerges.
but create a market for empty lots — i.e. reduce the transaction costs in that area and encourage separate specialization of O → E from E → N — and you should have much more data for calculating land values. i’m not sure how to create that market other than literally creating a marketplace and then incentivizing each side of the market to participate in your marketplace until it’s bootstrapped, i.e. the Uber approach.