Now this kind of thing can be found everywhere to one degree or another. Planners, obsessed with density, join with developers and politicians to skip over multiple generations of maturing in a single project. Even here in my small town in Central Minnesota, we have four story apartment buildings in neighborhoods surrounded by small single-family homes.

So what’s the problem with this? Isn’t density good? How can there be a problem with letting developers meet the market demand? If the land costs so much, doesn’t this force developers to build at scale? This is how things are done, Chuck. It’s the market.

Today our cities are starved for growth. At the same time, there are scores of people wanting to do small projects – incremental development – that are stifled by the artificially high cost of land. How can I say “artificially”?

You have a one story strip mall, a vacant lot and a sixteen story tower next to each other. What is the value of the vacant lot?

Let’s say the local code allows that vacant lot to be developed as a one story strip mall, but nothing higher. If the strip mall is worth $500,000, then the vacant lot is going to be somewhere around $75,000.

Okay, but what if the development code allows that vacant lot to be developed as a sixteen story tower? If the tower is worth $20,000,000, then that vacant lot is going to fetch a much higher price, maybe as much $2.5 million.

You own that vacant lot. I come to you with an offer to buy it for $75,000. What are the odds you are going to sell it at that price when you look to the other side and see the same piece of property going for millions? Not very good.

Now pause here because I know some of you are not following me. Surely, Chuck, you are not suggesting that the market price of $2.5 million is wrong? If someone can get that kind of money for the lot, shouldn’t they? Isn’t that good for the property owner, the city and the taxpayer? Aren’t you all about increasing the productivity of our places and isn’t $2.5 million more financially productive than $75,000?

Follow that line of thinking to its conclusion. Let’s say the lot is sold for $2.5 million creating a market price throughout the area for vacant lots. How many vacant lots can be sold at this price? Not many. If we are looking at the city of Sarasota developing every vacant lot with a sixteen story tower, then in order for everyone with a vacant lot to sell it to a developer, the population would need to go from 53,000 to five or six million to absorb all of that growth. Sarasota is a nice place, but it’s not that nice.

What will happen instead is clear. A small number of people will sell their vacant lots at a premium. The development on these lots will absorb the latent demand. Everyone else with a vacant lot will wind up with nothing – no demand, no sale – and, in the interim, any incremental development will be stifled, along with any naturally-occurring redevelopment (non-subsidized).