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Homebuilders Facing Land Shortage

Homebuilders in California and elsewhere may see their improving fortunes slowed by a growing shortage of land developed for housing in preferable areas. Lots developed before the recession are nearly used up, and landowners have been hesitant to develop new areas since prices have been depressed.
CSU Channel Islands

Builders optimistic about the improving housing market could soon hit a new snag - a lack of developed, desirable land available for home building.

Homebuilders at a Building Industry Association (BIA) gathering in Anaheim Hills, Calif., said that a growing worry for the industry is a shortage of ''finished lots'' to put homes on - land that has been graded and prepared for building, in in-demand areas worthwhile for homebuilders to invest.

Before the housing market turned downward in 2006 and 2007, finished lots were turned out at a breakneck pace to keep up with the housing boom, as developers graded land, added sewage and power lines, and prepared for what many in the industry thought was an certain continuation of constant growth. When the market turned downward, followed quickly by the recession, these developed lots sat vacant, waiting for the market to recover.

As the housing market bottomed out during the recession, the developed lots slowly filled in with new homes, meeting much-reduced market demands. Undeveloped land, by contrast, was not primed for building, as landowners sat out the market crash and waited for prices to improve. Now that the housing market has started to turn upward once again, the lots finished before the recession are nearly full, but no new land has been developed to take its place.

The most likely result of this upcoming shortage will be a lull for homebuilders - and related industries like landscape contractors - through 2013, even as the shortage in new homes creates bidding wars and drives prices up. (A recent uptick in foreclosure starts, however, may dampen price increases as more distressed homes reach the market next year.)

Prime locations, like those near good schools and business hubs, will be in even higher demand due to growing scarcity. As real estate prices improve, land developers will start playing catch-up, developing new areas to meet what could finally become a strong and sustained recovery from the housing crisis.


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October 23, 2019, 10:03 pm PDT

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