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Finished Lot Shortage Stifling Housing Recovery09-09-13 | News

Finished Lot Shortage Stifling Housing Recovery

A shortage of land primed for homebuilding is influencing the rapid growth of home prices, in the midst of a housing recovery that continues to underperform. Historically, housing starts averaged more than 1.5 million units annually from 1960-2000, and did not fall below 1 million until 2008. Though starts have recovered from a low of 550,000 in 2009, the annual rate was less than than 900,000 in the Census Bureau's July report.

A shortage of finished, buildable lots has emerged as a key factor in the sluggish housing recovery, especially in desirable areas, according to a recent survey by the National Association of Home Builders (NAHB).

In an August survey, 59 percent of builders reported that lots in their market were in low or very low supply. When the last survey was conducted on the subject in September 2012, 43 percent reported low availability.

Chief economist David Crowe said the 59 percent response was the largest the NAHB had seen since it started asking the question in 1997. In contrast, just 22 percent called the number of lots "normal" and 14 percent said it was "high" or "very high."

"There is still a substantial pent-up demand for housing waiting to be unleashed as the overall economy and labor situation improves," Crowe said. "Lot shortages are one of several barriers that have arisen, restraining builders from responding completely to increased demand."

The greatest shortages were reported in areas considered the most desirable, or "A" locations. Thirty-four percent of NAHB respondents reported low supplies in "A" areas, compared to 18 percent in "B" and 12 percent in "C" locations.

The shortages also mean higher prices for the builders that obtain developed lots. Thirty-four percent of homebuilders said prices for "A" lots were somewhat higher than a year earlier, and 26 percent called prices substantially higher. Just 15 percent of builders said "B" lots were substantially pricier, and 11 percent said "C" lot costs were significantly higher.

"Many residential developers left the industry, abandoned certain markets or simply stopped buying land and developing lots during the downturn," Crowe said. "Other barriers [to the recovery] include a shortage of labor in carpentry and other key building trades; limited availability of loans even for credit worthy homebuilders and buyers; and, more recently, an uptick in interest rates."