Builders are struggling to find enough land to develop to meet the current demand, according to a recent report in the Wall Street Journal. The combination of record-low interest rates and a growing desire for home space has fueled a booming market. Developers have struggled to keep up with demand, and now a complication has emerged in the form of a scarcity of land.
There is currently a shortage of finished lots in the country. Finished lots are lots that have met all the zoning and other regulatory requirements and are ready for construction of a home to begin. This has only been exacerbated by local governments moving online.
The process of getting a lot approved and ready for the construction of a new home involves a lot of red tape. It can typically take a year or more. In addition to getting the requisite permits, builders frequently also have to wait for the development of key infrastructure like roads and sewage systems before breaking ground on a new home.
Given the unprecedented demand for single-family homes and the low supply of homes on the market, builders are being forced to change their usual timelines in order to keep up with the demand. There were 1,186 new-home starts in November 2020, compared to 933 the year before. While home starts went down significantly when the pandemic hit in March and April, it is safe to say they have made a full recovery.
According to research by the firm Zonda, the number of available finished lots was down 9% in the third quarter. In a corresponding statistic, the research firm, Zelman & Associates, has reported the price of finished lots is up 11% in the third quarter of 2020 over the same period in 2019. Builders are buying up land quickly in order to have enough lots to build on and meet the demand.
The demand for single family homes is so strong that some developers are running out of homes to sell. Oregon builders, MonteVista Homes, have already seen their sales increase so much that they have run out of the inventory they were planning on selling in the first two quarters of 2021.
On the flip-side, other developers, such as the luxury home builders Toll Brothers Inc., have announced that they are limiting the number of homes they are actually selling in order to keep more stability.