Why the $400,000 House Might Be Worth Less to Your Town Than the $250,000 House
Authors: Eric Kronberg
Editors: Carrie Whitney, Darby Fly
When communities talk about development, they tend to focus on the big numbers: the value of a new building, the number of homes created, or the total property taxes generated. But those numbers can hide something important:
How much land—and how much public infrastructure—does it take to generate that value?
That is why we increasingly measure Tax Value per Acre to evaluate development patterns. It is a simple calculation, but it can fundamentally change how communities think about housing, zoning, infrastructure, and economic development.
Think of it like sales per square foot in retail. A store generating $5 million in sales isn't necessarily performing better than one generating $2 million if it requires ten times as much space.
Land works the same way.
A LARGER HOUSE DOESN'T NECESSARILY PRODUCE MORE VALUE
Imagine a $400,000 house on a large suburban lot compared with a $250,000 starter home on a small lot.
The $400,000 house appears to be the obvious winner for the town in tax dollars assessed. But what if that same large suburban lot could accommodate four $250,000 homes? Now the comparison isn't $400,000 versus $250,000. It is $400,000 versus $1 million in taxable value per acre.
Those four homes also share streets, water and sewer lines, and other municipal infrastructure more efficiently. This matters especially in towns with aging infrastructure. Too often, communities respond to aging sewer systems by expanding outward rather than reinvesting in the existing core. That leaves the original problem unresolved while creating even more infrastructure to maintain. Worse, low-density expansion may not generate enough revenue to support those additional long-term obligations.
That's the fundamental insight Tax Value per Acre provides: the value of development can't be understood independently of the amount of land and infrastructure required to support it.
And here's the thing: this isn't a new idea. It’s not even our idea. The concept has been pioneered by the sharp folks at Urban3 and Strong Towns, who have spent years demonstrating how dramatically development patterns affect municipal finances. Strong Towns also has a great primer on conducting a Value per Acre analysis.
THE OLD PARTS OF TOWN OFTEN WIN
The question of real value gets particularly interesting when we look at traditional neighborhoods. Older neighborhoods and Main Streets were typically built on relatively small lots. Houses sit closer together. Streets are interconnected. Duplexes, cottages, apartments, and accessory units may be mixed among detached houses.
Modern zoning often treats these places as anomalies. In fact, many could not legally be built again under today's minimum lot sizes, frontage requirements, setbacks, and density limits.
This shift in zoning approach has created a deficit: both in the types of neighborhoods and housing residents want to live in (which we’ve written about at length) and in municipal economic productivity. This deficit reveals itself when we calculate the Tax Value per Acre of these older neighborhoods and Main Streets.
We've been studying examples in Wise County, Virginia, where one small, 0.13-acre historic lot has an assessed value of only about $95,000. Nothing remarkable about that number. But, measured per acre, that modest property produces approximately $740,000 in taxable value per acre. Three larger suburban-style properties in the same county, by comparison, produce approximately $396,000, $341,000, and $215,000 per acre.
The lesson? From a tax value perspective, an area’s development pattern can be more impactful than the value of individual buildings.
MORE ATTAINABLE HOMES DON'T MEAN LESS VALUE
One of the common concerns we hear when communities consider allowing smaller lots, starter homes, duplexes, or backyard cottages is: “Won't allowing less expensive homes lower our property values?”
Tax Value per Acre helps us look at that question differently.
Land is one of the costs embedded in every new home. If zoning requires every house to consume a large amount of land, we're effectively requiring every homeowner to purchase more land whether they want it or not. That makes housing more expensive while also reducing the number of households sharing the cost of streets, pipes, sidewalks, and other infrastructure.
But allow smaller lots in traditional neighborhood patterns, and something interesting happens:
Individual homes can become less expensive even while the neighborhood becomes more economically productive.
If one large lot supports a single $500,000 house, the community has $500,000 of taxable value on that land. If the same amount of land supports three $300,000 homes, each home is considerably more attainable—but together they represent $900,000 of taxable value on the same amount of land. This value depends on lot acreage: the smaller the lot, the greater the value increase on a per acre basis.
Communities sometimes focus so heavily on maximizing the value of each individual house that they overlook the productivity of the neighborhood as a whole. Tax Value per Acre shows that smaller homes can cost less for the people buying them while generating more total property value for the community.
That's an unusually powerful alignment of interests. A town doesn't have to choose between attainable housing and a healthy tax base. In many cases, the same development pattern advances both.
Put more bluntly: our current development practices and policies can make housing more expensive and make the town less economically productive. We mandate more land per house, require more infrastructure to serve it, and collect less tax value per acre—and then wonder why housing is expensive and municipal budgets are strained.
Getting to a stronger Tax Value per Acre doesn’t require towers or dramatic changes in neighborhood character. It can simply mean starter homes on smaller lots, duplexes, backyard cottages, small apartment buildings, and modest infill—the exact same basic forms found in traditional neighborhoods.
Because compact development allows more households to share the streets, water lines, sewer lines, and other infrastructure a community must build and maintain, the benefit isn't only on the revenue side. The same development pattern can produce more taxable value while making more efficient use of existing public investment.
The question, then, shouldn't simply be:
“How much is each house worth?”
A better question is:
“How productive is that land relative to the cost of the infrastructure needed to support it?”
That is what Tax Value per Acre helps us see: the value produced. But that’s only one side of the equation. Our friends at Urban3 are experts at analyzing the other side: what different development patterns cost communities to serve and maintain.
There is also a simple way to get a rough first look. Divide a community’s total annual budget by its total developed land area to estimate an average public cost per acre. Compare that with the tax revenue generated by a parcel or neighborhood, and you can begin to see which development patterns generate more revenue relative to the community's current spending.
This shortcut comes with a big warning: an annual budget is not the same thing as the true long-term cost of serving development. It captures current spending—services, salaries, debt payments, and whatever capital expenses happen to be budgeted that year—but it can significantly understate future obligations to repair and replace streets, pipes, sidewalks, and other infrastructure. Infrastructure is aging every day, whether a community is budgeting for its eventual replacement or not. Understanding those full lifecycle costs requires a much deeper analysis—and is where expertise from groups like Urban3 becomes especially valuable.
TO BETTER ANSWER THESE QUESTIONS, WE'RE ADDING TAX VALUE PER ACRE TO OUR HOUSING ATTAINABILITY CALCULATOR
We developed our Housing Attainability Calculator around a straightforward question:
What does a proposed housing project actually cost the person who will live there?
It allows users to test land costs, construction costs, financing, rents, sales prices, and different housing configurations to see whether a project is attainable. But we've increasingly realized that housing feasibility is only half of the equation. A project can work for the household while the development pattern works poorly for the town—or vice versa.
We also want to understand what that development pattern means for the community supporting it. By adding Tax Value per Acre to the calculator, we can evaluate a development scenario through two lenses at the same time:
Can people afford the homes?
How productively does the development use the community's land and infrastructure?
Those questions belong together.
A community shouldn't have to choose between housing that works for its residents and development that works for its finances. Let’s identify development patterns that do both.
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