Homebuilders Making a Land Grab

February 18, 2013

As the housing market heats up, home builders are going after open land. The nation’s four largest builders — Lennar, Pulte Group, D.R. Horton, and KB Home — spent between $500 million to $1 billion each buying land the past year. 

However, one of the most aggressive property buyers has been Standard Pacific, ranked 13th largest homebuilder in the nation. It snatched up $711 million in empty lots and undeveloped land last year — nearly the $785 million that D.R. Horton spent, which has four times Standard Pacific’s revenue. 

Standard Pacific, which was on the verge of bankruptcy five years ago, went on a land buying spree that started by late 2009, buying land up at lower prices to plan for a projected pick-up in housing by 2014. 

The builder’s planning ahead may pay off, with housing experts expecting Standard Pacific to gain market share and see higher-than-average profit margins due to its early start with its land-purchase program. 

“All other builders have done something similar, but in a small scale and not as aggressively,” says Alex Barron, founder and senior research analysts of the Housing Research Center in El Paso, Texas. “So now these companies are facing finishing lot and community shortages and are out desperately looking for land and having to pay top dollar.” 

Nearly half of developers have expressed a concern about a land shortage, according to a survey by the National Association of Home Builders. 

“They haven’t developed any lots for six years, and the big builders were selling lots,” says Steve Melman, NAHB’s director of economic services. “Now that you want to build, they’re in short supply.” 

Source: “Buying Land to Hit Pay Dirt,” Orange County Register (Santa Ana, Calif.) (Feb. 17, 2013)