Measuring the cost of land inputs to housing construction

We propose a new market indicator to track land input costs in housing: Land Cost to Floor Area (LCFA), defined as the ratio of land price to the permitted floor area ratio (FAR) set by local land use regulations. LCFA captures zoning policy effects on both the extensive (land quantity) and intensive (price) margins, making it sensitive to changes like upzoning, which typically allows more floor area per unit of land. It can also assess policies targeting residential land prices, such as the relaxation of urban growth boundaries. We outline a theoretical basis of LCFA, detail its construction, and illustrate its application using a zoning reform in Auckland that introduced medium- and high-density zones to areas previously zoned for low-density housing. The indicator reveals that upzoning significantly reduced land input costs in targeted areas. Furthermore, zones with lower LCFA experienced higher rates of housing starts, demonstrating the indicator’s usefulness in evaluating anticipated zoning impacts.