When thinking about developing a $10,000 lot, we can think of the land cost as being 10% of the total development cost.

There would be no expectation that a luxury condo would work in such a place if it would, the land would be more expensive. The land is cheap and that low cost reflects the demand for it. What scale of a home would we anticipate on such a lot? Let’s go to the extremes to illustrate the point: Would you more likely expect a popup shack or a multi-story, luxury condo unit? Of course, we’d expect the shack. To use some simple numbers, in the first iteration, let's assume the lot the Little House was built upon cost $10,000. Let’s follow the economic life cycle of the Little House and the property around it. As apartments and condo units grew up around the Little House, the value of the land it was sitting on grew tremendously, even though the house itself was in decline. As the value of the land increases, there is natural pressure to make more out of the property. Yesterday I wrote about how incrementally rising land values, combined with the ability to redevelop to something more intense, naturally prompts the redevelopment of properties in decline. The book is about nostalgia, but it is also about the economics of rent seeking. And if the city had a property tax or sales tax instead of a land tax – which they must have had for the situation to persist as long as it did – how all that financial gain came through the investment of others. As the movers were bringing the Little House to its new home in the country, I couldn’t help but think about the massive payoff the great-great-granddaughter of the original owner was getting for that land. This is a nice little tale about the value of a slow and simple life, but it’s also – probably unwittingly – a lesson in development economics. The tenements are replaced with skyscrapers and development became so intense that the Little House, “only saw the sun at noon, and didn’t see the moon or stars at night at all because the lights of the city were too bright.” The happy ending comes when the little house is moved out of town to an idyllic setting in the country (some justice occurs when traffic is held up for the movers). A trolley car is built and then, later, an elevated train. In a couple pages, those homes become apartments and tenement houses. After a while, a road is built nearby and homes that look a lot like the Little House start to show up. At the start of the book, the lights of the big city are way off in the distance.

The little house by virginia lee burton