Shortage of Buildable Lots Holding Back Housing Market -NAHB

Builders are encountering a shortage of buildable lots the National Association of Home Builders (NAHB) said today; a lack of lots that is particularly acute in the most desirable areas.  The situation, reported by builders in a survey conducted by NAHB may be one of the key factors holding back a more robust housing recovery the organization said.

In the August survey August, 59 percent of builders reported that lots in their market were in low or very low supply.  When the last such survey was conducted in September 2012 43 percent reported a low availability.  NAHB Chief Economist David Crowe said the 59 percent response was the largest the Association had seen since it started asking the question in 1997.

Thirty-nine percent of respondents characterized the supply of lots as "low" and 20 percent called it "very low."  Twenty-two percent called the number of lots "normal" and 14 percent said it was "high" or "very high."

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

The shortages mean higher prices for builders who are able to obtain developed lots and 34 percent of home builders said prices for A lots was somewhat higher than a year earlier while 26 percent called prices substantially higher.  B lots were called substantially pricier by 15 percent of builders and C lots by 11 percent. 

Crowe said one reason for the shortage is that many residential developers left the industry, abandoned certain markets or simply stopped buying land and developing lots during the downturn.

The shortage of buildable lots has led to higher prices for the consumer against the backdrop of a housing recovery that is still modest by historical standards. To this point, housing starts have recovered from a low of 550,000 in 2009 to an annual rate of just fewer than 900,000 in the Census Bureau's latest release. Historically, starts averaged more than 1.5 million a year from 1960-2000, without ever plunging below 1 million until 2008.

Crowe said, "There is still a substantial pent-up demand for housing waiting to be unleashed as the overall economy and labor situation improves.  Lot shortages are one of several barriers that have arisen, restraining builders from responding completely to increased demand. Other barriers include a shortage of labor in carpentry and other key building trades, limited availability of loans even for credit worthy home builders and home buyers; and, more recently, an uptick in interest rates."