Lots of lots are coming — but mostly gone for now
Home builders are running out of buildable home sites. Relief is on the way — just not soon. The current inventory of vacant developed lots is at its lowest level since the Zonda market research firm began tracking it in 2015.
They’re “disappearing ... faster than replacement lots can be brought to market,” says the company’s chief economist, Ali Wolf. “Builders are snatching them up,” she says — in some cases, “aggressively” buying parcels “they wouldn’t even have considered a year ago. ... All the top markets are significantly undersupplied.”
The number of building sites in development is up 14% over a year ago, Zonda recently reported. However, the lion’s share are still in the excavation stage. So they won’t be ready for builders until sometime next year. The rest are waiting for the developer to put in streets (or the streets are currently being added). These sites are expected to be ready to accept construction later this year — some before winter sets in — but only “if everything goes smoothly,” Wolf says.
Nevertheless, the economist believes “a lot more houses will hit the market in the next 24 months.” And that, she says, should put a stop to the extraordinary run-up in new house prices. Or at least slow it down. The median price of a newly built house in July was $390,500: an 18% jump from a year earlier, according to the latest data from the U.S. Census Bureau. The median for all of last year was $336,000.
Higher costs have priced out some buyers, particularly at the lower end of the market. A year ago, 42% of new home sales were priced below $300,000. But in
July, only 24% were priced below that benchmark.
Many factors go into the price of new construction. But a principal one is what builders pay for building sites, and that cost is up significantly. Lot values for detached, single-family homes started last year surged 18%, Census figures show, driving up the cost to a record median of $53,000. And that doesn’t include custom-built houses.
According to the National Association of Home Builders, lot values are now approaching the record levels recorded during the 20052006 housing boom, when half of lots were going for more than $43,000. That’s equivalent to about $55,000 when converted into inflation-adjusted 2020 dollars.
Though the jump in prices is “unprecedented,” Natalia Siniavskaia, an NAHB economist, says it is “consistent with other significant building material price hikes and undeniable supply challenges that have been constraining the pandemic-fueled housing boom.”
Over the last year, a quarter of the builders polled by Zonda said they paid significantly higher prices for finished sites — 21% or more overall. And going forward, some two-thirds say their lot costs are likely to rise by 11% or more. “That’s one of the reasons we’re starting to see more and more attached or high-density product,” says Zonda Senior Managing Principal Tim Sullivan.
Higher lot costs are occurring even though lot sizes are shrinking. The median stood at 8,306 square feet, or just under a fifth of an acre, in 2020, the NAHB says.
That’s about 125 feet from the smallest lot size ever.
And a record 39% of all lots are under 0.16 acres.
At the other end of the lot size spectrum, meanwhile, the share of spec houses built before they are sold and on sites exceeding half an acre shrunk from 14% in 2010 to 9% last year. The share of lots measuring between a quarter and half an acre declined from 24% to 18% over the same 10-year period.
Another way to look at the lot shortage is the number of new communities that are in active sales. And their number is shriveling up, too, largely because builders are selling out quicker than they expected. Zonda’s community count is down 20-25% nationally, but it’s up to 40% off in some markets. And “we haven’t seen the bottom yet,” says Sullivan.
Similarly, John Burns Real Estate Consulting reports that builders are selling out of so many projects that its active list is down 17%. And Senior Vice President Jody Kahn doesn’t expect a big uptick anytime soon. “New home community supply won’t surge,” Kahn reported recently. “With 67% of land brokers reporting that fewer lots are available for sale and fewer bidders on land, we don’t expect a massive increase in construction.”
Despite all this, Zonda says land is only fifth on the latest list of builder concerns: Just 40% of respondents to the July survey said land prices were an issue, down from 47% in June.
The availability of building products is No. 1 on the list of builders’ current challenges, followed by affordability issues, the cost of building materials and the availability of labor. The inability to get key materials on time has some builders “thinking about switching to products they can get more quickly regardless of price,” Sullivan reports.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.