Land Scarcity Sparks Another Bottleneck For Housing Market 

Land Scarcity Sparks Another Bottleneck For Housing Market 

Forget skyrocketing home building costs because there’s another more pressing bottleneck: buildable land scarcity. 

According to Bloomberg, Ali Wolf, the Chief Economist at Zonda, which analyzes housing market data, said everyone knows about the supply-drive issues when sourcing raw materials for a build. Lumber prices have been driven up due to shortage and the lack of new mills coming online, copper and other base metal prices are through the roof, concrete is getting more expensive, and many other building materials are rapidly increasing over the past year. 

Ali explained besides surging building costs. There’s an overlooked issue that’s starting to become a significant bottleneck for homebuilders and or anyone who wants to build a new home, which a shortage of ready-to-build lots.

 An infographic from Zonda explains low inventory is at the lowest level on record. 

As Ali explained: “A value of 100, represents perfect equilibrium, while a value of 125 and above equals “Significantly Oversupplied”, 115-125 – “Slightly Oversupplied”, 85-115 – “Appropriately Supply”, 75-85 – “Slightly Undersupplied”, and 75 and below – “Significantly Undersupplied.” Basically every market is considered “significantly undersupplied” today, including the national figure.

There’s a perfectly reasonable explanation for a shortage of ready-to-build lots, mainly due to the housing market frenzy, which was sparked by the Federal Reserve sending mortgage rates to record lows after the virus pandemic struck in early 2020 caught everyone off guard. Yes, there’s a lot of land out there, but buildable lots are much different. It takes time to clear the land, apply for permits, and other stuff needed to make it worthy of being buildable. This process could take upwards of a year or more.

“Put another way, to get supply to match today’s demand, we should have been developing lots a year or two ago…. but, a year or two ago, we didn’t know that demand would be so hot, so that wasn’t happening!” said Wolf.

On top of all this, the permitting process with county and state governments has been a more drawn-out process due to the virus pandemic. What usually would take a year or less to prep land and have it permitted to become buildable now takes upwards of 1.5-2 years. 

For builders, such as D.R. Horton Inc. and Lennar Corp, who are experiencing rising construction costs and labor shortages, and the possibility of buildable land scarcity, the housing market frenzy has forced these companies to experiment with blind auctions in areas such as Florida, southern California, and Texas. 

“We’ve shut off sales until homes are nearly completed,” said Greg Yakim, a partner at CastleRock Communities, a privately held builder in Texas, who spoke with Bloomberg. “We have huge waiting lists.”

Builders are so overwhelmed with the backlog and massive demand that they’re slowing sales or pushing up prices, said Vaike O’Grady, the regional director in Austin, Texas, for real estate advisory firm Zonda. 

A recent nationwide Zonda survey showed builders are limiting contracts per project. 

“It’s something that we’ve never seen,” said O’Grady, who has been in the industry for 30 years. “The builder’s job has gone from trying to sell homes to trying to build homes.”

So shortages of lumber, buildable land, and new houses plague real estate markets across the US pushing prices to bubble levels. 

Tyler Durden
Fri, 05/21/2021 – 11:25

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