Land Costs and Zoning Reforms: Key to Multifamily Development, Says Expert

Philadelphia, PA – In the intricate landscape of multifamily real estate development, land acquisition typically constitutes a significant, albeit variable, portion of the total project budget, ranging from 10% to 20%. This figure often sits at the lower end of the spectrum in areas with more affordable rents, according to real estate developer Bobby Fijan. Fijan, a partner at Form Developers and a recognized expert in floorplan optimization and complex multifamily development, recently highlighted these dynamics in a social media post.

"For a multifamily project, Land is 10-20% of the total development budget. And it’s on the lower end of that span in lower rent areas," Fijan stated in a tweet. He emphasized that land prices are inherently sensitive to zoning changes, noting, "land prices go up when zoning changes as most land owners are AWARE their land become more valuable." This observation aligns with broader industry understanding, where re-zoning a parcel for higher density or different use can substantially increase its market value, as it unlocks greater development potential.

Fijan also weighed in on the impact of regulatory reforms aimed at boosting housing supply. He acknowledged the positive intent behind measures such as reducing lot sizes or parking requirements: "Reducing lot sizes or parking requirements are GOOD in that they increase supply." However, he cautioned against overestimating the immediate effect on project costs and rents. "The speed at which they lower project costs, let alone rents (would any real estate developer charge lower rents than people were willing to pay simply because their building costs were less?) is quite gradual," Fijan explained. This perspective suggests that while such reforms are beneficial for long-term supply, their direct and rapid translation into lower development costs or reduced rents is often limited by market forces and developer economics.

Industry data supports the notion that land costs are a substantial component of multifamily development, with some reports indicating land acquisition can account for approximately 19% of total development costs. Beyond land, hard construction costs typically make up 50% to 70% of the budget, while soft costs like architectural fees, permits, and legal expenses range from 20% to 30%. Regulatory compliance, in particular, can add significantly to overall costs, with some studies suggesting it accounts for over 40% of multifamily development expenses. This complex cost structure, combined with the slow-moving nature of real estate markets, underpins Fijan's assessment of zoning reform's gradual impact.