Builders’ Big Problem: Shortage of Good Lots

November 3, 2015

Are all of the good lots already taken? Builders are increasingly vocalizing concern over the limited amount of developed lots available, which is greatly hindering their ability to ramp up construction.

Builders say restrictive regulations, a shortage of financing for lot development, and buyers’ growing preference to live in or near cities – where there is little unused land left – are the main reasons behind the lot shortage problem.

"It's likely limiting the number of new homes for sale," says David Crowe, chief economist of the National Association of Home Builders.

What’s more, the tighter supplies are raising the costs to build homes. Earlier this year, 57 percent of builders reported the cost and availability of developed lots to be among their most significant problems this year – up from 46 percent who had rated it as a big issue in 2013, according to NAHB research.

Builders say that federal environmental rules have become more stringent in recent years, which includes a wider definition of wetlands that builders must avoid or mitigate. Indeed, pricier wetland mitigation mandates are severely reducing lot development in New Orleans, says home builder Randy Noel, president of Reve. He says the mandates also are increasing land purchases for builders by about $25,000 per lot.

Also, builders say banks have been more leery of financing land acquisition and development, which is limiting the number of lots for builders.

Another hurdle: There’s less land in cities to build on. Builders say there are fewer available lots in or near cities, partially due to stricter zoning laws, particularly for multifamily complexes.

Source: “Housing Lot Shortage Stymies Home Sales,” USA Today (Oct. 27, 2015)